FORM 10-K
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
January 3, 2009
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Commission file
number: 1-32383
BLUELINX HOLDINGS
INC.
(Exact name of registrant as
specified in its charter)
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Delaware
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77-0627356
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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4300 Wildwood Parkway, Atlanta, Georgia
(Address of principal
executive offices)
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30339
(Zip Code)
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Registrants telephone number, including area code:
770-953-7000
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common stock, par value $0.01 per share
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New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large
accelerated
filer o
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Accelerated
filer o
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Non-accelerated
filer þ
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Smaller
reporting
company o
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes o No þ
The aggregate market value of the registrants common stock
held by non-affiliates of the registrant as of June 27,
2008 was $43,910,553, based on the closing price on the New York
Stock Exchange of $3.63 per share on June 27, 2008.
As of March 3, 2009, the registrant had
32,806,619 shares of common stock outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of BlueLinx Holdings Inc.s definitive Proxy
Statement for use in connection with its 2009 Annual Meeting of
Stockholders, scheduled to be held on May 20, 2009, are
incorporated by reference into Part III of this Report.
BLUELINX
HOLDINGS INC.
ANNUAL
REPORT ON
FORM 10-K
For the
Fiscal Year Ended January 3, 2009
TABLE OF
CONTENTS
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CAUTIONARY
STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This Annual Report on
Form 10-K
includes forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of
1934, as amended. Forward-looking statements include, without
limitation, any statement that may predict, forecast, indicate
or imply future results, performance or achievements, and may
contain the words anticipate, believe,
could, expect, estimate,
intend, may, project,
plan, should, will be,
will likely continue, will likely result
or words or phrases of similar meaning. You should read
statements containing these words carefully, because they
discuss our future expectations, contain projections of our
future results or state other forward-looking
information.
All of these forward-looking statements are based on estimates
and assumptions made by us that, although believed by us to be
reasonable, are inherently uncertain. However, there are events
in the future that we are not able to accurately predict or
control. The factors listed under Item 1A, Risk Factors, as
well as any cautionary language in this
Form 10-K,
provide examples of risks, uncertainties and events that may
cause our actual results to differ materially from the
expectations we describe in our forward-looking statements.
Although we believe that our expectations are based on
reasonable assumptions, actual results may differ materially
from those in the forward looking statements as a result of
various factors, including, but not limited to, those described
under Item 1A, Risk Factors and elsewhere in this
Form 10-K.
Forward-looking statements speak only as of the date of this
Form 10-K.
Except as required under federal securities laws and the rules
and regulations of the SEC, we do not have any intention, and do
not undertake, to update any forward-looking statements to
reflect events or circumstances arising after the date of this
Form 10-K,
whether as a result of new information, future events or
otherwise. As a result of these risks and uncertainties, readers
are cautioned not to place undue reliance on the forward-looking
statements included in this
Form 10-K
or that may be made elsewhere from time to time by or on behalf
of us. All forward-looking statements attributable to us are
expressly qualified by these cautionary statements.
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PART I
As used herein, unless the context otherwise requires,
BlueLinx, the Company, we,
us and our refer to BlueLinx Holdings
Inc. and its subsidiaries. BlueLinx Corporation is the
wholly-owned operating subsidiary of BlueLinx Holdings Inc. and
is referred to herein as the operating company when
necessary. Reference to fiscal 2008 refers to the
53-week period ended January 3, 2009. Reference to
fiscal 2007 refers to the 52-week period ended
December 29, 2007. Reference to fiscal 2006
refers to the 52-week period ended December 30, 2006.
Company
Overview
BlueLinx Holdings Inc., operating through our wholly-owned
subsidiary, BlueLinx Corporation, is a leading distributor of
building products in the United States. We operate in all of the
major metropolitan areas in the United States and, as of
January 3, 2009, we distributed more than 10,000 products
to approximately 11,500 customers through our network of more
than 70 warehouses and third-party operated warehouses.
We distribute products in two principal categories: structural
products and specialty products. Structural products, which
represented approximately 50% and 54% of our fiscal 2008 and
fiscal 2007 gross sales, include plywood, oriented strand
board (OSB), rebar and remesh, lumber and other wood
products primarily used for structural support, walls and
flooring in construction projects. Specialty products, which
represented approximately 50% and 46% of our fiscal 2008 and
fiscal 2007 gross sales, include roofing, insulation,
specialty panels, moulding, engineered wood products, vinyl
products (used primarily in siding), composite decking and metal
products (excluding rebar and remesh).
Our customers include building materials dealers, industrial
users of building products, manufactured housing builders and
home improvement centers. We purchase products from over 750
vendors and serve as a national distributor for a number of our
suppliers. We distribute products through our owned fleet of
over 600 trucks and over 1,000 trailers, as well as by common
carrier.
Our principal executive offices are located at 4300 Wildwood
Parkway, Atlanta, Georgia 30339 and our telephone number is
(770) 953-7000.
Our filings with the U.S. Securities and Exchange
Commission, including annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
proxy statements and amendments to those reports, are accessible
free of charge at our official website, www.BlueLinxCo.com. We
have adopted a Code of Ethics within the meaning of
Item 406(b) of
Regulation S-K.
This Code of Ethics applies to our principal executive officer,
principal financial officer and principal accounting officer.
This Code of Ethics, our board committee charters and our
corporate governance guidelines are publicly available at
www.BlueLinxCo.com or upon request by writing to BlueLinx
Holdings Inc., Attn: Corporate Secretary, 4300 Wildwood Parkway,
Atlanta, Georgia 30339. If we make substantial amendments to our
Code of Ethics or grant any waiver, including any implicit
waiver, we are required to disclose the nature of such amendment
or waiver on our website or in a report on
Form 8-K
of such amendment or waiver. The reference to our website does
not constitute incorporation by reference of the information
contained at the site.
History
We were created on March 8, 2004 as a Georgia corporation
named ABP Distribution Holdings Inc. (ABP). ABP was
owned by Cerberus Capital Management, L.P. (Cerberus Capital
Management, L.P. and its subsidiaries are referred to herein as
Cerberus), a private, New York-based investment
firm, and members of our management team. Prior to May 7,
2004, certain of our assets were owned by the distribution
division (the Division) of Georgia-Pacific
Corporation (Georgia-Pacific). The Division
commenced operations in 1954 with 13 warehouses primarily used
as an outlet for Georgia-Pacifics plywood. On May 7,
2004, Georgia-Pacific sold assets of the Division to ABP. ABP
subsequently merged into BlueLinx Holdings Inc. On
December 17, 2004, we consummated an initial public
offering of our common stock.
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Products
and Services
As of January 3, 2009, we distributed more than 10,000
different structural and specialty products to approximately
11,500 customers nationwide. Our structural products are
primarily used for structural support, walls, flooring and
roofing in construction projects. Additional end-uses of our
structural products include outdoor decks, sheathing, crates and
boxes. Our specialty products include engineered lumber,
roofing, insulation, metal products (excluding rebar and
remesh), vinyl products (used primarily in siding), moulding,
composite decking and particleboard. In some cases, these
products are branded.
We also provide a wide range of value-added services and
solutions to our customers and vendors including:
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providing less-than-truckload delivery services;
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pre-negotiated program pricing plans;
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inventory stocking;
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automated order processing through an electronic data
interchange, or EDI, that provides a direct link between us and
our customers;
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inter-modal distribution services, including railcar unloading
and cargo reloading onto customers trucks; and
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back-haul services, when otherwise empty trucks are returning
from customer deliveries.
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Distribution
Channels
We sell products through three main distribution channels:
Warehouse
Sales
Warehouse sales are delivered from our warehouses to dealers,
home improvement centers and industrial users. We deliver
products primarily using our fleet of over 600 trucks and over
1,000 trailers, but also occasionally use common carriers for
peak load flexibility. We operate in all of the major
metropolitan areas in the United States through our network of
more than 70 warehouses and third-party operated warehouses. Our
warehouses have over ten million square feet of space under roof
plus significant outdoor storage space. Warehouse sales
accounted for approximately 59% of our fiscal 2008 and fiscal
2007 gross sales.
Reload
Sales
Reload sales are similar to warehouse sales but are shipped from
third-party warehouses where we store owned product in order to
expand our geographic reach. This channel is employed primarily
to service strategic customers that would be uneconomical to
service from our warehouses and to distribute large volumes of
imported products such as metal or hardwood plywood from port
facilities. Reload sales accounted for approximately 13% and 12%
of our gross sales in fiscal 2008 and fiscal 2007, respectively.
Direct
Sales
Direct sales are shipped from the manufacturer to the customer
without our taking physical inventory possession. This channel
requires the lowest amount of committed capital and fixed costs.
Direct sales accounted for approximately 28% and 29% of our
fiscal 2008 and fiscal 2007 gross sales, respectively.
Customers
As of January 3, 2009, our customer base included
approximately 11,500 customers across multiple market segments
and various end-use markets, including the following types of
customers:
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building materials dealers;
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industrial users of building products;
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manufactured housing builders; and
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home improvement centers.
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Sales and
Marketing
Our sales efforts primarily are directed through our sales force
of approximately 600 sales representatives. Approximately 300 of
our sales representatives are located at our two sales centers
in Denver and Atlanta. Within these sales centers, our sales
representatives primarily interact with our customers over the
telephone. The remaining 300 sales representatives are located
throughout the country and are responsible for maintaining a
local dialogue with our customers, including making frequent,
in-person visits.
Our sales force is separated between industrial/dealer sales and
home improvement center sales. Industrial/dealer sales are
managed by regional vice-presidents with sales teams organized
by customer regions. The majority of industrial/dealer orders
are processed by telephone and are facilitated by our
centralized database of customer preferences and purchasing
history. We also have dedicated cross-functional customer
support teams focused on strategic growth with the home
improvement centers.
Suppliers
As of January 3, 2009, our vendor base included over 750
suppliers of both structural and specialty building products. In
some cases, these products are branded. We have supply contracts
in place with many of our vendors. Terms for these agreements
frequently include prompt payment discounts and freight
allowances and occasionally include volume discounts, growth
incentives, marketing allowances, and consigned inventory.
Purchases of products manufactured by Georgia-Pacific accounted
for approximately 21% and approximately 25% of total purchases
in fiscal 2008 and fiscal 2007, respectively, with no other
supplier accounting for more than 5% of our fiscal 2008
purchases. On May 7, 2004, we entered into a Master
Purchase, Supply & Distribution Agreement with
Georgia-Pacific, or the Supply Agreement. The Supply Agreement
details distribution rights by product categories, including
exclusivity rights and minimum supply volume commitments from
Georgia-Pacific with respect to certain products. This agreement
also details our purchase obligations by product categories,
including minimum purchase volume commitments with respect to
certain of the products supplied to us. Based on 2008 average
market prices, our purchase obligation under the Supply
Agreement is approximately $32 million for the next two
years. If we fail or refuse to purchase any products that we are
obligated to purchase pursuant to the Supply Agreement,
Georgia-Pacific has the right to sell products to third parties
and, for certain products, terminate our exclusivity, and we may
be required to pay monetary penalties.
On June 6, 2008, Georgia-Pacific notified us of its intent
to terminate this Supply Agreement, effective May 7, 2010.
On February 12, 2009, Georgia-Pacific and BlueLinx entered
into a new three-year agreement governing the purchase and sale
of engineered lumber products between parties. Georgia-Pacific
and BlueLinx are currently in discussions regarding new
agreements which would govern the purchase, supply and
distribution arrangements between the two parties after
May 7, 2010 for products other than engineered lumber.
Georgia-Pacific and BlueLinx are continuing to work together
pursuant to the terms of the existing Supply Agreement for the
purchase and sale of products not covered by the new engineered
lumber agreement.
Competition
The U.S. building products distribution market is a highly
fragmented market, served by a small number of multi-regional
distributors, several regionally focused distributors and a
large number of independent local distributors. Local and
regional distributors tend to be closely held and often
specialize in a limited number of segments, such as the roofing
segment, in which they offer a broader selection of products.
Some of our multi-regional competitors are part of larger
companies and therefore have access to greater financial and
other
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resources than us. We compete on the basis of breadth of product
offering, consistent availability of product, product price and
quality, reputation, service and distribution facility location.
Our two largest competitors are Weyerhaeuser Company, or
Weyerhaeuser, and Boise Cascade LLC, or Boise Cascade. Most
major markets are served by at least one of these distributors.
Seasonality
We are exposed to fluctuations in quarterly sales volumes and
expenses due to seasonal factors. These seasonal factors are
common in the building products distribution industry. The first
and fourth quarters are typically our slowest quarters due to
the impact of poor weather on the construction market. Our
second and third quarters are typically our strongest quarters,
reflecting a substantial increase in construction due to more
favorable weather conditions. Our working capital and accounts
receivable and payable generally peak in the third quarter,
while inventory generally peaks in the second quarter in
anticipation of the summer building season. Although, we
generally expect these trends to continue for the foreseeable
future, we have reduced our inventory as part of our effort to
manage to the current weakened demand environment in the housing
market. Additionally, our accounts receivable balance has
declined due to the weakened demand environment for the products
we distribute.
Trademarks
As of January 31, 2009, we had 39 U.S. trademark
applications and registrations, one issued U.S. patent and
two Canadian trademark registrations. Depending on the
jurisdiction, trademarks are valid as long as they are in use
and/or their
registrations are properly maintained and they have not become
generic. Registrations of trademarks can generally be renewed
indefinitely as long as the trademarks are in use. Our patent
expires in September 2013. We do not believe our business is
dependent on any one of our trademarks or on our patent.
Employees
As of January 3, 2009 we employed approximately
2,100 persons on a full-time basis. Approximately 30% of
our employees are represented by labor unions. As of
January 3, 2009, we had 45 collective bargaining
agreements, of which 10, representing 140 employees, are up
for renewal in 2009. We consider our relationship with our
employees generally to be good.
Executive
Officers
The following table contains the name, age and position with our
Company of each of our executive officers as of March 3,
2009. There are no arrangements or understandings between any of
our executive officers and any other person pursuant to which
any executive officer was or is to be selected as an officer.
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Name
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Age
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Position
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Howard S. Cohen
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Executive Chairman
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George R. Judd
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President and Chief Executive Officer
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H. Douglas Goforth
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Chief Financial Officer and Treasurer
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Duane G. Goodwin
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Chief Supply Chain Officer
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Dean A. Adelman
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Chief Administrative Officer
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Howard S. Cohen has served as Chairman of our Board since
March 2008 and as a member of our Board since September 2007.
Mr. Cohen served as our Interim Chief Executive Officer
from March 2008 through October 2008. Prior to joining our
company as an executive officer, Mr. Cohen was a Senior
Advisor of Cerberus Capital Management, L.P., or Cerberus.
Mr. Cohen possesses 33 years of leadership experience,
including service as President and CEO of four publicly-traded
companies: GTECH Corporation, from 2001 to 2002;
Bell & Howell, from 2000 to 2001; Sidus Systems Inc.,
from 1998 to 1999; and Peak Technologies Group, Inc., from 1996
to 1998. Mr. Cohen has also managed independent divisions
of three Fortune 500 companies. Mr. Cohen also serves
as the Chairman of the Board of Directors of Albertsons LLC and
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Hilco Receivables LLC, both of which are Cerberus portfolio
companies. Cerberus is the indirect holder of a majority of the
outstanding shares of our common stock.
George R. Judd has served as our Chief Executive Officer
since October 2008 and as our President since May 2004. Prior to
that time, he worked for Georgia-Pacific Corporation in a
variety of positions managing both inside and outside sales,
national accounts and most recently as Vice President of Sales
and Eastern Operations since 2002. From 2000 until 2002,
Mr. Judd worked as Vice President of the North and Midwest
regions of the Distribution Division. He served as Vice
President of the Southeast region from 1999 to 2000.
Mr. Judd serves on the board of the Girl Scouts of Greater
Atlanta and leads its design and construction committee. He
graduated from Western Connecticut State University in 1984 with
a Bachelors degree in Marketing.
H. Douglas Goforth has served as our Senior Vice
President, Chief Financial Officer and Treasurer since February
2008. From November 2006 until February 2008, Mr. Goforth
served as Vice President and Corporate Controller for Armor
Holdings, Inc. which was acquired by BAE Systems in July 2007.
Previously he served as Corporate Controller for BlueLinx from
May 2004 until October 2006, where he played a key role in
BlueLinx 2004 IPO. From 2002 until 2004 he served as
Controller for the Distribution Division of Georgia-Pacific
Corporation. Mr. Goforth has over 20 years of combined
accounting, finance, treasury, acquisition and management
experience with leading distribution and manufacturing companies
including Mitsubishi Wireless Communications, Inc., Yamaha Motor
Manufacturing, Inc. and Ingersoll-Rand. Mr. Goforth is a
North Carolina State Board Certified Public Accountant and
earned a Bachelor of Science in Accounting from Mars Hill
College in North Carolina.
Duane G. Goodwin has served as our Chief Supply Chain
Officer since December 2005. Prior to that time,
Mr. Goodwin was with The Home Depot since April 1994, where
he served in a variety of positions including Vice
President/Merchandising Hardware from July 2003 to
February 2005, Vice President Global Sourcing from July 2000 to
July 2003, and Divisional Merchandise Manager from April 1999 to
July 2000. Before this Mr. Goodwin was with Wal-Mart
Stores, Inc., where he served in a variety of roles from 1985
through April 1994. Prior to joining our Company,
Mr. Goodwin also served as an outside consultant to
Cerberus beginning in June 2005.
Dean A. Adelman has served as our Chief Administrative
Officer since May 2008 and as our Vice President, Human
Resources since October 2005. Prior to that time, he served as
Vice President Human Resources, Staff Development &
Training for Corrections Corporation of America. Previously,
Mr. Adelman served as Vice President Human Resources for
Arbys Inc. (formerly RTM Restaurant Group) from 1998 to
2002. From 1991 to 1998, Mr. Adelman served as senior
counsel for Georgia-Pacific Corporation. Mr. Adelman
received his Masters of Business Administration from the Kellogg
School of Management at Northwestern University, a Juris Doctor
degree from the University of Georgia School of Law, and a
Bachelor of Arts degree from the University of Georgia.
Environmental
and Other Governmental Regulations
Environmental
Regulation and Compliance
Our operations are subject to various federal, state, provincial
and local laws, rules and regulations. We are subject to
environmental laws, rules and regulations that limit discharges
into the environment, establish standards for the handling,
generation, emission, release, discharge, treatment, storage and
disposal of hazardous materials, substances and wastes, and
require cleanup of contaminated soil and groundwater. These
laws, ordinances and regulations are complex, change frequently
and have tended to become more stringent over time. Many of them
provide for substantial fines and penalties, orders (including
orders to cease operations) and criminal sanctions for
violations. They may also impose liability for property damage
and personal injury stemming from the presence of, or exposure
to, hazardous substances. In addition, certain of our operations
require us to obtain, maintain compliance with, and periodically
renew permits.
Certain of these laws, including the Comprehensive Environmental
Response, Compensation, and Liability Act, may require the
investigation and cleanup of an entitys or its
predecessors current or former
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properties, even if the associated contamination was caused by
the operations of a third party. These laws also may require the
investigation and cleanup of third-party sites at which an
entity or its predecessor sent hazardous wastes for disposal,
notwithstanding that the original disposal activity accorded
with all applicable requirements. Liability under such laws may
be imposed jointly and severally, and regardless of fault.
Georgia-Pacific Corporation has agreed to indemnify us against
any claim arising from environmental conditions that existed
prior to May 7, 2004. In addition, we carry environmental
insurance. While we do not expect to incur significant
independent costs arising from environmental conditions, there
can be no assurance that all such costs will be covered by
indemnification or insurance.
We are also subject to the requirements of the
U.S. Department of Labor Occupational Safety and Health
Administration, or OSHA. In order to maintain compliance with
applicable OSHA requirements, we have established uniform safety
and compliance procedures for our operations and implemented
measures to prevent workplace injuries.
The U.S. Department of Transportation, or DOT, regulates
our operations in domestic interstate commerce. We are subject
to safety requirements governing interstate operations
prescribed by the DOT. Vehicle dimensions and driver hours of
service also remain subject to both federal and state regulation.
We incur and will continue to incur costs to comply with the
requirements of environmental, health and safety and
transportation laws, ordinances and regulations. We anticipate
that these requirements could become more stringent in the
future, and we cannot assure you that compliance costs will not
be material.
In addition to the other information contained in this
Form 10-K,
the following risk factors should be considered carefully in
evaluating our business. Our business, financial condition, or
results of operations could be materially adversely affected by
any of these risks. Additional risks not presently known to us
or that we currently deem immaterial may also impair our
business and operations.
Our
industry is highly cyclical, and prolonged periods of weak
demand or excess supply may reduce our net sales and/or margins,
which may reduce our net income or cause us to incur
losses.
The building products distribution industry is subject to
cyclical market pressures. Prices of building products are
determined by overall supply and demand in the market for
building products. Market prices of building products
historically have been volatile and cyclical and we have limited
ability to control the timing and amount of pricing changes for
building products. Demand for building products is driven mainly
by factors outside of our control, such as general economic and
political conditions, interest rates, availability of mortgage
financing, the construction, repair and remodeling and
industrial markets, weather and population growth. The supply of
building products fluctuates based on available manufacturing
capacity, and excess capacity in the industry can result in
significant declines in market prices for those products. To the
extent that prices and volumes experience a sustained or sharp
decline, our net sales and margins would likely decline as well.
Our results in some periods have been affected by market
volatility, including a reduction in gross profits due to a
decline in the resale value of our structural products
inventory. All of these factors make it difficult to forecast
our operating results.
Further
downward changes in demand for housing could negatively impact
our business.
The residential homebuilding industry is sensitive to changes in
economic conditions, including interest rates, foreclosure
rates, and availability of financing. Further adverse changes in
these conditions could further decrease demand for new homes.
Additional declines in housing demand could result in lower
pricing and demand for many of our building products which could
have increased negative effects on our revenues and operating
results.
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Further
disruptions in the capital and credit markets may impact the
availability of credit and general business
conditions.
If the financial institutions which extended credit commitments
to us through our revolving credit facility are adversely
affected by the conditions of the capital and credit markets,
they may become unable to fund borrowings under those credit
commitments, which could have an adverse impact on our financial
condition and our ability to borrow funds, if needed, for
working capital, capital expenditures, acquisitions and other
corporate purposes.
Continued market disruptions could cause broader economic
downturns, which may lead to lower demand for our products and
increased incidence of customers inability to pay their
accounts. Bankruptcies by our customers may cause us to incur
bad debt expense at levels higher than historically experienced.
Certain of our suppliers may potentially be impacted as well,
causing disruption or delay of product availability. These
events would adversely impact our results of operations, cash
flows and financial position.
Our
cash flows and capital resources may be insufficient to make
required payments on our substantial indebtedness and future
indebtedness.
We have a substantial amount of debt. As of January 3,
2009, advances outstanding under our revolving credit facility
were approximately $156 million, borrowing availability was
approximately $192 million and outstanding letters of
credit on the facility were approximately $13 million. We
also have a mortgage loan in the amount of $289 million.
Our substantial debt could have important consequences to you.
For example, it could:
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make it difficult for us to satisfy our debt obligations;
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make us more vulnerable to general adverse economic and industry
conditions;
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limit our ability to obtain additional financing for working
capital, capital expenditures, acquisitions and other general
corporate requirements;
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expose us to interest rate fluctuations because the interest
rate on the debt under our revolving credit facility is variable;
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require us to dedicate a substantial portion of our cash flow
from operations to payments on our debt, thereby reducing the
availability of our cash flow for operations and other purposes;
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limit our flexibility in planning for, or reacting to, changes
in our business and the industry in which we operate; and
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place us at a competitive disadvantage compared to competitors
that may have proportionately less debt.
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In addition, our ability to make scheduled payments or refinance
our obligations depends on our successful financial and
operating performance, cash flows and capital resources, which
in turn depend upon prevailing economic conditions and certain
financial, business and other factors, many of which are beyond
our control. These factors include, among others:
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economic and demand factors affecting the building products
distribution industry;
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pricing pressures;
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increased operating costs;
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competitive conditions; and
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other operating difficulties.
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If our cash flows and capital resources are insufficient to fund
our debt service obligations, we may be forced to reduce or
delay capital expenditures, sell material assets or operations,
obtain additional capital or restructure our debt. Obtaining
additional capital or restructuring our debt could be
accomplished in part
10
through new or additional borrowings or placements of debt or
equity securities. There is no assurance that we could obtain
additional capital or restructure our debt on terms acceptable
to us or at all. In the event that we are required to dispose of
material assets or operations to meet our debt service and other
obligations, the value realized on such assets or operations
will depend on market conditions and the availability of buyers.
Accordingly, any such sale may not, among other things, be for a
sufficient dollar amount. Our obligations under the revolving
credit facility are secured by a first priority security
interest in all of our operating companys inventories,
receivables and proceeds from those items. In addition, our
mortgage loan is secured by the majority of our real property.
The foregoing encumbrances may limit our ability to dispose of
material assets or operations. We also may not be able to
restructure our indebtedness on favorable economic terms, if at
all. We may incur substantial additional indebtedness in the
future, including under the revolving credit facility. Our
incurrence of additional indebtedness would intensify the risks
described above.
The
instruments governing our indebtedness contain various covenants
limiting the discretion of our management in operating our
business.
Our revolving credit facility and mortgage loan contain various
restrictive covenants and restrictions, including financial
covenants customary for asset-based loans that limit our
managements discretion in operating our business. In
particular, these instruments limit our ability to, among other
things:
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incur additional debt;
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grant liens on assets;
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make investments, including capital expenditures;
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sell or acquire assets outside the ordinary course of business;
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engage in transactions with affiliates; and
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make fundamental business changes.
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If we fail to maintain minimum excess availability of
$40 million under the revolving credit facility, the
revolving credit facility requires us to (i) maintain
certain financial ratios and (ii) limit our capital
expenditures. If we fail to comply with the restrictions in the
revolving credit facility, the mortgage loan documents or any
other current or future financing agreements, a default may
allow the creditors under the relevant instruments to accelerate
the related debt and to exercise their remedies under these
agreements, which will typically include the right to declare
the principal amount of that debt, together with accrued and
unpaid interest and other related amounts, immediately due and
payable, to exercise any remedies the creditors may have to
foreclose on assets that are subject to liens securing that debt
and to terminate any commitments they had made to supply further
funds.
The
payment of dividends has been suspended, and resumption is
dependant on business conditions, among other factors; the
instruments governing our indebtedness contain various covenants
that may limit our ability to pay dividends.
In the past we have paid dividends on our common stock at the
quarterly rate of $0.125 per share. However, on December 5,
2007, we suspended the payment of dividends on our common stock
for an indefinite period of time. Resumption of the payment of
dividends will depend on, among other things, business
conditions in the housing industry, our results of operations,
cash requirements, financial condition, contractual
restrictions, provisions of applicable law and other factors
that our board of directors may deem relevant. Accordingly, we
may not be able to resume the payment of dividends at the same
quarterly rate in the future, if at all.
We
depend upon a single supplier, Georgia-Pacific for a significant
percentage of our products.
Georgia-Pacific is our largest supplier, accounting for
approximately 21% and approximately 25% of our purchases during
fiscal 2008 and fiscal 2007, respectively. On May 7, 2004,
we entered into a multi-year Supply Agreement with
Georgia-Pacific. The Supply Agreement had a five-year initial
term expiring on May 7,
11
2009. On June 6, 2008, Georgia-Pacific notified us of its
intent to terminate this Supply Agreement, effective May 7,
2010. On February 12, 2009, Georgia-Pacific and BlueLinx
entered into a new three-year agreement governing the purchase
and supply of engineered lumber products between the two
parties. Georgia-Pacific and BlueLinx are currently in
discussions regarding new agreements which would govern the
purchase, supply and distribution arrangements between the two
parties after May 7, 2010 for products other than
engineered lumber. Georgia-Pacific and BlueLinx are continuing
to work together pursuant to the terms of the existing Supply
Agreement for the purchase and sale of products not covered by
the new engineered lumber agreement. Upon a material breach of
the agreement by us, Georgia-Pacific may terminate the agreement
at anytime. If Georgia-Pacific and BlueLinx are unable to agree
on new supply arrangements for products other than engineered
lumber or Georgia-Pacific otherwise discontinues sales of
product to us after May 7, 2010, we could experience a
product shortage unless and until we obtain a replacement
supplier. We may not be able to obtain replacement products on
favorable economic terms. An inability to replace products on
favorable economic terms would adversely impact our net sales
and our costs, which in turn could impact our gross profit, net
income and cash flows.
Under the Supply Agreement, we have minimum purchase volume
commitments with respect to certain products supplied to us.
Based on 2008 average market prices, our purchase obligations
under this agreement are $32 million for the remaining term
of the Supply Agreement. If we fail or refuse to purchase any
products that we are obligated to purchase pursuant to the
Supply Agreement, Georgia-Pacific has the right to sell products
to third parties and, for certain products, terminate our
exclusivity, which could reduce our net sales due to the
unavailability of products or our gross profit if we are
required to pay higher product prices to other suppliers. A
reduction in our net sales or gross profit may also reduce our
net income and cash flows.
Our
industry is highly fragmented and competitive. If we are unable
to compete effectively, our net sales and operating results will
be reduced.
The building products distribution industry is highly fragmented
and competitive and the barriers to entry for local competitors
are relatively low. Some of our competitors are part of larger
companies and therefore have access to greater financial and
other resources than us. In addition, certain product
manufacturers sell and distribute their products directly to
customers. Additional manufacturers of products distributed by
us may elect to sell and distribute directly to end-users in the
future or enter into exclusive supply arrangements with other
distributors. Finally, we may not be able to maintain our costs
at a level sufficiently low for us to compete effectively. If we
are unable to compete effectively, our net sales and net income
will be reduced.
Integrating
acquisitions may be time-consuming and create costs that could
reduce our operating results and cash flows.
Part of our growth strategy includes pursuing acquisitions. Any
integration process may be complex and time consuming, may be
disruptive to the business and may cause an interruption of, or
a distraction of managements attention from, the business
as a result of a number of obstacles, including but not limited
to:
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the loss of key customers of the acquired company;
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the incurrence of unexpected expenses and working capital
requirements;
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a failure of our due diligence process to identify significant
issues or contingencies;
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difficulties assimilating the operations and personnel of the
acquired company;
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difficulties effectively integrating the acquired technologies
with our current technologies;
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our inability to retain key personnel of acquired entities;
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failure to maintain the quality of customer service;
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our inability to achieve the financial and strategic goals for
the acquired and combined businesses; and
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difficulty in maintaining internal controls, procedures and
policies.
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12
Any of the foregoing obstacles, or a combination of them, could
increase selling, general and administrative expenses in
absolute terms
and/or as a
percentage of net sales, which could in turn negatively impact
our operating results and cash flows.
We may not be able to consummate acquisitions in the future on
terms acceptable to us, or at all. In addition, future
acquisitions are accompanied by the risk that the obligations
and liabilities of an acquired company may not be adequately
reflected in the historical financial statements of that company
and the risk that those historical financial statements may be
based on assumptions which are incorrect or inconsistent with
our assumptions or approach to accounting policies. Any of these
material obligations, liabilities or incorrect or inconsistent
assumptions could adversely impact our results of operations.
A
significant percentage of our employees are unionized. Wage
increases or work stoppages by our unionized employees may
reduce our results of operations.
As of January 3, 2009, approximately 30% of our employees
were represented by various labor unions. As of January 3,
2009, we had 45 collective bargaining agreements, of which 10,
covering 140 total employees, are up for renewal in 2009. We may
become subject to material cost increases, or additional work
rules imposed by agreements with labor unions. The foregoing
could increase our selling, general and administrative expenses
in absolute terms
and/or as a
percentage of net sales. In addition, work stoppages or other
labor disturbances may occur in the future, which could
adversely impact our net sales
and/or
selling, general and administrative expenses. All of these
factors could negatively impact our operating results and cash
flows.
We may
be unable to recover or continue to recognize our deferred
income tax assets which would increase our tax expense and
reduce our operating results.
As of January 3, 2009, we have recorded deferred income tax
assets of $36.8 million. Deferred income tax assets and
income tax benefits are recognized for temporary differences
between amounts recorded for financial reporting and income tax
purposes. We evaluate our deferred tax assets quarterly to
determine if valuation allowances are required based on the
consideration of all available evidence using a more
likely than not standard.
In evaluating our ability to recover our deferred income tax
assets, we consider all available positive and negative
evidence, including our past operating results, our ability to
carryback losses against prior taxable income, the existence of
cumulative losses in the most recent years, tax planning
strategies, our forecast of future taxable income and the
existence of an excess of appreciated assets over the tax basis
of our net assets in amounts sufficient to realize our deferred
tax assets. In estimating future taxable income, we develop
assumptions including the amount of future state and federal
pretax operating and non-operating income, the reversal of
temporary differences and the implementation of feasible and
prudent tax planning strategies. These assumptions require
significant judgment about the forecasts of future taxable
income. Substantial changes in these assumptions could result in
our inability to recover the value of our deferred tax assets
which could result in future tax expense and reduced operating
results.
Increases
in the cost of employee benefits, such as pension and other
postretirement benefits, could impact our financial results and
cash flow.
Unfavorable changes in the cost of our pension retirement
benefits and current employees medical benefits could
materially impact our financial results and cash flow. We
sponsor a number of defined benefit pension plans covering
substantially all of our hourly employees. Our estimates of the
amount and timing of our future funding obligations for our
defined benefit pension plans are based upon various
assumptions. These assumptions include, but are not limited to,
the discount rate, projected return on plan assets, compensation
increase rates, mortality rates, retirement patterns, and
turnover rates. In addition, the amount and timing of our
pension funding obligations can be influenced by funding
requirements that are established by the Employee Retirement
Income and Security Act of 1974 (ERISA), the Pension Protection
Act, Congressional Acts, or other governing bodies. During 2008,
we contributed approximately $7.5 million to our defined
13
benefit pension plans. As of January 3, 2009, the net
unfunded status of our benefit plan was $17.0 million. If
the status of our defined benefit plan continues to be unfunded
it could require future cash contributions.
We participate in various multi-employer pension plans in the
U.S. The majority of these plans are underfunded. If, in
the future, we choose to withdraw from these plans, we would
likely need to record a withdrawal liability, which may be
material to our financial results.
Federal
and state transportation regulations could impose substantial
costs on us which would reduce our net income.
We use our own fleet of over 600 trucks and over 1,000 trailers
to service customers throughout the United States. The
U.S. Department of Transportation, or DOT, regulates our
operations in domestic interstate commerce. We are subject to
safety requirements governing interstate operations prescribed
by the DOT. Vehicle dimensions and driver hours of service also
remain subject to both federal and state regulation. More
restrictive limitations on vehicle weight and size, trailer
length and configuration, or driver hours of service would
increase our costs, which, if we are unable to pass these cost
increases on to our customers, would reduce our gross margins,
increase our selling, general and administrative expenses and
reduce our operating results.
Environmental
laws impose risks and costs on us.
Our operations are subject to federal, state, provincial and
local laws, rules and regulations governing the protection of
the environment, including, but not limited to, those regulating
discharges into the air and water, the use, handling and
disposal of hazardous or toxic substances, the management of
wastes, the cleanup of contamination and the control of noise
and odors. We have made, and will continue to make, expenditures
to comply with these requirements. While we believe, based upon
current information, that we are in substantial compliance with
all applicable environmental laws, rules and regulations, we
could be subject to potentially significant fines or penalties
for any failure to comply. Moreover, under certain environmental
laws, a current or previous owner or operator of real property,
and parties that generate or transport hazardous substances that
are disposed of at that real property, may be held liable for
the cost to investigate or clean up such real property and for
related damages to natural resources. We may be subject to
liability, including liability for investigation and cleanup
costs, if contamination is discovered at one of our current or
former warehouse facilities, or at a landfill or other location
where we have disposed of, or arranged for the disposal of,
wastes. Georgia-Pacific has agreed to indemnify us against any
claim arising from environmental conditions that existed prior
to May 7, 2004. We also carry environmental insurance.
However, any remediation costs not related to conditions
existing prior to May 7, 2004 may not be covered by
indemnification. In addition, certain remediation costs may not
be covered by insurance. In addition, we could be subject to
claims brought pursuant to applicable laws, rules or regulations
for property damage or personal injury resulting from the
environmental impact of our operations. Increasingly stringent
environmental requirements, more aggressive enforcement actions,
the discovery of unknown conditions or the bringing of future
claims may cause our expenditures for environmental matters to
increase, and we may incur material costs associated with these
matters.
We may
incur substantial costs relating to Georgia-Pacifics
product liability related claims.
Georgia-Pacific is a defendant in suits brought in various
courts around the nation by plaintiffs who allege that they have
suffered personal injury as a result of exposure to products
containing asbestos. These suits allege a variety of lung and
other diseases based on alleged exposure to products previously
manufactured by Georgia-Pacific. Although the terms of the asset
purchase agreement provide that Georgia-Pacific will indemnify
us against all obligations and liabilities arising out of,
relating to or otherwise in any way in respect of any product
liability claims (including, without limitation, claims,
obligations or liabilities relating to the presence or alleged
presence of asbestos-containing materials) with respect to
products purchased, sold, marketed, stored, delivered,
distributed or transported by Georgia-Pacific and its
affiliates, including the Division prior to the acquisition, it
could be possible that circumstances may arise under which
asbestos-related claims against Georgia-Pacific could cause us
to incur substantial costs.
14
For example, in the event that Georgia-Pacific is financially
unable to respond to an asbestos product liability claim,
plaintiffs lawyers may, in order to obtain recovery,
attempt to sue us, in our capacity as owner of assets sold by
Georgia-Pacific, despite the fact that the assets sold to us did
not contain asbestos. Asbestos litigation has, over the years,
proved unpredictable, as the aggressive and well-financed
asbestos plaintiffs bar has been creative, and often
successful, in bringing claims based on novel legal theories and
on expansive interpretations of existing legal theories. These
claims have included claims against companies that did not
manufacture asbestos products. As a result of these factors, a
number of companies have been held liable for amounts far in
excess of their perceived exposure. Although we believe, based
on our understanding of the law as currently interpreted, that
we should not be held liable for any of Georgia-Pacifics
asbestos-related claims, and, to the contrary, that we would
prevail on summary judgment on any such claims, there is
nevertheless a possibility that new theories could be developed,
or that the application of existing theories could be expanded,
in a manner that would result in liability for us. Any such
liability could ultimately be borne by us if Georgia-Pacific is
unable to fulfill its indemnity obligation under the asset
purchase agreement with us.
Affiliates
of Cerberus control us and may have conflicts of interest with
other stockholders in the future.
Funds and accounts managed by Cerberus or its affiliated
management companies, which are referred to collectively as the
controlling stockholder, collectively own approximately 55% of
our common stock. As a result, the controlling stockholder will
continue to be able to control the election of our directors,
determine our corporate and management policies and determine,
without the consent of our other stockholders, the outcome of
any corporate transaction or other matter submitted to our
stockholders for approval, including potential mergers or
acquisitions, asset sales and other significant corporate
transactions.
Three of our ten directors are employees of Cerberus. The
controlling stockholder also has sufficient voting power to
amend our organizational documents. The interests of the
controlling stockholder may not coincide with the interests of
other holders of our common stock. Additionally, the controlling
stockholder is in the business of making investments in
companies and may, from time to time, acquire and hold interests
in businesses that compete directly or indirectly with us. The
controlling stockholder may also pursue, for its own account,
acquisition opportunities that may be complementary to our
business, and as a result, those acquisition opportunities may
not be available to us. So long as the controlling stockholder
continues to own a significant amount of the outstanding shares
of our common stock, it will continue to be able to strongly
influence or effectively control our decisions, including
potential mergers or acquisitions, asset sales and other
significant corporate transactions. In addition, because we are
a controlled company within the meaning of the New York Stock
Exchange rules, we are exempt from the NYSE requirements that
our board be composed of a majority of independent directors,
and that our compensation and nominating/corporate governance
committees be composed entirely of independent directors.
Even
if Cerberus no longer controls us in the future, certain
provisions of our charter documents and agreements and Delaware
law could discourage, delay or prevent a merger or acquisition
at a premium price.
Our Amended and Restated Certificate of Incorporation and Bylaws
contain provisions that:
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permit us to issue, without any further vote or action by the
stockholders, up to 30 million shares of preferred stock in
one or more series and, with respect to each series, to fix the
number of shares constituting the series and the designation of
the series, the voting powers (if any) of the shares of such
series, and the preferences and other special rights, if any,
and any qualifications, limitations or restrictions, of the
shares of the series; and
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limit the stockholders ability to call special meetings.
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These provisions may discourage, delay or prevent a merger or
acquisition at a premium price.
In addition, we are subject to Section 203 of the General
Corporation Law of the State of Delaware, or the DGCL, which
also imposes certain restrictions on mergers and other business
combinations between us
15
and any holder of 15% or more of our common stock. Further,
certain of our incentive plans provide for vesting of stock
options
and/or
payments to be made to our employees in connection with a change
of control, which could discourage, delay or prevent a merger or
acquisition at a premium price.
Anti-terrorism
measures may harm our business by impeding our ability to
deliver products on a timely and cost-effective
basis.
In the event of future terrorist attacks or threats on the
United States, federal, state and local authorities could
implement various security measures, including checkpoints and
travel restrictions on large trucks. Our customers typically
need quick delivery and rely on our on-time delivery
capabilities. If security measures disrupt or impede the timing
of our deliveries, we may fail to meet the needs of our
customers, or may incur increased expenses to do so.
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ITEM 1B.
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UNRESOLVED
STAFF COMMENTS.
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None.
We operate warehouse facilities in over 65 markets nationwide.
We own 63 warehouse facilities and lease 12 additional warehouse
facilities. The total square footage under roof at our owned and
leased warehouses is approximately 11.2 million square
feet. Our Denver sales center and 56 of our owned warehouse
facilities secure our mortgage loan.
Our corporate headquarters located at 4300 Wildwood Parkway,
Atlanta, Georgia 30339 is approximately 250,000 square
feet. During the fourth quarter of fiscal 2007, as part of a
restructuring effort, we vacated approximately
100,000 square feet of our corporate headquarters space
which we are actively seeking to sublease.
The following table summarizes our real estate facilities
including their inside square footage:
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Owned
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Leased
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Facility Type
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Number
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Facilities
(ft2)
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Facilities
(ft2)
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Office Space(1)
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3
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68,721
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251,900
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Warehouses
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75
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10,221,955
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656,166
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TOTAL
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78
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10,290,676
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908,066
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(1) |
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Includes corporate headquarters in Atlanta, the Denver Sales
Center and a call center in Vancouver. We are actively marketing
100,000 square feet for sublease at our Atlanta corporate
headquarters. |
We also store materials outdoors, such as lumber and rebar, at
all of our warehouse locations, which increases their
distribution and storage capacity. We believe that substantially
all of our property and equipment is in good condition, subject
to normal wear and tear. We believe that our facilities have
sufficient capacity to meet current and projected distribution
needs.
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ITEM 3.
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LEGAL
PROCEEDINGS.
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On November 19, 2004, we received a letter from Wickes
Lumber, or Wickes, asserting that approximately $16 million
in payments received by the Division during the
90-day
period prior to Wickes January 20, 2004
Chapter 11 filing were preferential payments under
section 547 of the United States Bankruptcy Code. On
October 14, 2005, Wickes filed a lawsuit in the United
States Bankruptcy Court for the Northern District of Illinois
titled Wickes Inc. v. Georgia Pacific Distribution
Division (BlueLinx), (Bankruptcy Adversary Proceeding
No. 05-2322)
asserting its claim. On November 14, 2005, we filed an
answer to the complaint denying liability. This claim was
formally dismissed on December 4, 2008 after BlueLinx and
Wickes agreed to settle the matter for an immaterial amount.
16
We are, and from time to time may be, a party to routine legal
proceedings incidental to the operation of our business. The
outcome of any pending or threatened proceedings is not expected
to have a material adverse effect on our financial condition,
operating results or cash flows, based on our current
understanding of the relevant facts. We establish reserves for
pending or threatened proceedings when the costs associated with
such proceedings become probable and can be reasonably estimated.
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ITEM 4.
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SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS.
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No matters were submitted to a vote of security holders during
the fourth quarter of fiscal 2008.
PART II
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ITEM 5.
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MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES.
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Our equity securities consist of one class of common stock. The
common stock began trading on December 16, 2004. The common
stock is traded on the New York Stock Exchange under the symbol
BXC. The following table sets forth, for the periods
indicated, the range of the high and low sales prices for the
common stock as quoted on the New York Stock Exchange:
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High
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Low
|
|
|
Fiscal Year Ended January 3, 2009
|
|
|
|
|
|
|
|
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First Quarter
|
|
$
|
5.97
|
|
|
$
|
2.96
|
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Second Quarter
|
|
$
|
6.00
|
|
|
$
|
3.57
|
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Third Quarter
|
|
$
|
7.54
|
|
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$
|
2.91
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Fourth Quarter
|
|
$
|
5.60
|
|
|
$
|
1.02
|
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Fiscal Year Ended December 29, 2007
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|
|
|
|
|
|
|
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First Quarter
|
|
$
|
12.39
|
|
|
$
|
10.18
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Second Quarter
|
|
$
|
11.96
|
|
|
$
|
10.47
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Third Quarter
|
|
$
|
10.61
|
|
|
$
|
6.93
|
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Fourth Quarter
|
|
$
|
7.50
|
|
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$
|
3.16
|
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As of March 3, 2009, there were 31 registered stockholders,
and, as of that date we estimate there were approximately 2,500
beneficial owners holding our common stock in nominee or
street name.
We paid a cash dividend of $0.125 per share for each of our
fiscal quarters beginning in March 2005 and continuing through
the fourth quarter of 2007. However, on December 5, 2007,
we suspended the payment of dividends on our common stock for an
indefinite period of time. Resumption of the payment of
dividends will depend on, among other things, business
conditions in the housing industry, our results of operations,
cash requirements, financial condition, contractual
restrictions, provisions of applicable law and other factors
that our board of directors may deem relevant. See
Item 8. Financial Statements and Supplementary Data,
Note 8. Revolving Credit Facility for additional
information regarding limitations on the ability of BlueLinx
Corporation to transfer funds to its parent, BlueLinx Holdings
Inc., which could impact our ability to pay dividends to our
stockholders. Accordingly, we may not be able to resume the
payment dividends at the same quarterly rate in the future, if
at all.
17
Equity
Compensation Plan Information
The following table provides information about the shares of our
common stock that may be issued upon the exercise of options and
other awards under our existing equity compensation plans as of
January 3, 2009. Our stockholder-approved equity
compensation plans are the 2004 Equity Incentive Plan and the
2006 Long-Term Equity Incentive Plan. We do not have any
non-stockholder approved equity compensation plans.
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(a)
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(b)
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(c)
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Number of Securities
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|
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Weighted-Average
|
|
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Number of Securities Remaining
|
|
|
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to be Issued Upon
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Exercise Price of
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|
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Available for Future Issuance Under
|
|
|
|
Exercise of
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Outstanding
|
|
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Equity Compensation Plans
|
|
|
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Outstanding Options,
|
|
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Options, Warrants
|
|
|
(Excluding Securities Reflected in
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Plan Category
|
|
Warrants and Rights
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and Rights
|
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Column (a))
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Equity compensation plans approved by security holders
|
|
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1,038,515
|
|
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$
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6.78
|
|
|
|
2,063,183
|
|
Equity compensation plans not approved by security holders
|
|
|
|
|
|
|
n/a
|
|
|
|
|
|
Total
|
|
|
1,038,515
|
|
|
$
|
6.78
|
|
|
|
2,063,183
|
|
18
Performance
Graph
The chart below compares the quarterly percentage change in the
cumulative total stockholder return on our common stock with the
cumulative total return on the Russell 2000 Index and a peer
group index for the period commencing December 16, 2004
(the first day of trading of our common stock after our initial
public offering) and ending January 3, 2009, assuming an
investment of $100 and the reinvestment of any dividends.
Our peer group index was selected by us and is comprised of
reporting companies with lines of business and product offerings
that are comparable to ours and which we believe most accurately
represent our business. Our peer group consists of the following
companies: Beacon Roofing Supply Inc., Builders Firstsource,
Building Materials Holding Corporation, Huttig Building Products
Inc., Interline Brands Inc., Universal Forest Products Inc. and
Watsco Inc.
Comparison
of Cumulative Total Return
Cumulative Total Return
Year Ending
(in dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company Name/Index
|
|
|
12/16/04
|
|
|
01/01/05
|
|
|
12/31/05
|
|
|
12/30/06
|
|
|
12/29/07
|
|
|
01/03/09
|
BlueLinx Holdings Inc.
|
|
|
|
100
|
|
|
|
|
107.19
|
|
|
|
|
86.84
|
|
|
|
|
83.75
|
|
|
|
|
34.78
|
|
|
|
|
22.21
|
|
Russell 2000 Index
|
|
|
|
100
|
|
|
|
|
101.55
|
|
|
|
|
106.17
|
|
|
|
|
125.67
|
|
|
|
|
124.63
|
|
|
|
|
83.58
|
|
Peer Group
|
|
|
|
100
|
|
|
|
|
101.82
|
|
|
|
|
149.98
|
|
|
|
|
126.66
|
|
|
|
|
78.13
|
|
|
|
|
66.49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ITEM 6.
|
SELECTED
FINANCIAL DATA.
|
We were created on March 8, 2004 (date of inception) as a
Georgia corporation named ABP Distribution Holdings Inc. On
May 7, 2004, the Company and its operating company acquired
the assets of the distribution division of Georgia-Pacific, or
the Division, as described below. On August 30, 2004, ABP
Distribution Holdings Inc. merged into BlueLinx Holdings Inc., a
Delaware corporation. The Consolidated Financial Statements
include the accounts of the Company and its wholly-owned
subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
The financial statements of the Division reflect the accounts
and results of certain operations of the business conducted by
the Division. The accompanying financial statements of the
Division have been prepared from Georgia-Pacifics
historical accounting records and are presented on a carve-out
basis reflecting
19
these certain assets, liabilities, and operations. The Division
was an unincorporated business of Georgia-Pacific and,
accordingly, Georgia-Pacifics net investment in these
operations (parents net investment) is presented in lieu
of stockholders equity. All significant intradivision
transactions have been eliminated. The financial statements are
not necessarily indicative of the financial position, results of
operations and cash flows that might have occurred had the
Division been an independent entity not integrated into
Georgia-Pacifics other operations. Also, they may not be
indicative of the actual financial position that might have
otherwise resulted, or of the future results of operations or
financial position of the Division.
The following table sets forth certain historical financial data
of our company. The selected financial data for the fiscal year
ended January 3, 2009 (fiscal 2008), the fiscal
year ended December 29, 2007 (fiscal 2007), the
fiscal year ended December 30, 2006 (fiscal
2006), the fiscal year ended December 31, 2005
(fiscal 2005), the period from inception
(March 8, 2004) to January 1, 2005, and the
period from January 4, 2004 to May 7, 2004 (the
aggregate period from January 4, 2004 through
January 1, 2005 referred to herein as fiscal
2004) have been derived from the Companys audited
financial statements included elsewhere in this Annual Report on
Form 10-K
or from prior financial statements. The financial statements
prior to May 7, 2004 are referred to as
pre-acquisition period statements. The following
information should be read in conjunction with our financial
statements and Managements Discussion and Analysis
of Financial Condition and Results of Operations.
The acquisition of the assets of the Division was accounted for
using the purchase method of accounting, and the assets acquired
and liabilities assumed were accounted for at their fair market
values at the date of consummation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-acquisition
|
|
|
|
BlueLinx
|
|
|
|
Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inception
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(March 8,
|
|
|
|
Period from
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
2004)
|
|
|
|
January 4,
|
|
|
|
January 3,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
December 31,
|
|
|
to January 1,
|
|
|
|
2004 to May 7,
|
|
|
|
2009
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2005
|
|
|
|
2004
|
|
|
|
(In thousands, except per share data)
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
2,779,699
|
|
|
$
|
3,833,910
|
|
|
$
|
4,899,383
|
|
|
$
|
5,622,071
|
|
|
$
|
3,672,820
|
|
|
|
$
|
1,885,334
|
|
Cost of sales
|
|
|
2,464,766
|
|
|
|
3,441,964
|
|
|
|
4,419,576
|
|
|
|
5,109,632
|
|
|
|
3,339,590
|
|
|
|
|
1,658,123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
314,933
|
|
|
|
391,946
|
|
|
|
479,807
|
|
|
|
512,439
|
|
|
|
333,230
|
|
|
|
|
227,211
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
303,403
|
|
|
|
372,754
|
|
|
|
381,554
|
|
|
|
378,008
|
|
|
|
248,291
|
|
|
|
|
139,203
|
|
Depreciation and amortization
|
|
|
20,519
|
|
|
|
20,924
|
|
|
|
20,724
|
|
|
|
18,770
|
|
|
|
10,132
|
|
|
|
|
6,175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
323,922
|
|
|
|
393,678
|
|
|
|
402,278
|
|
|
|
396,778
|
|
|
|
258,423
|
|
|
|
|
145,378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(8,989
|
)
|
|
|
(1,732
|
)
|
|
|
77,529
|
|
|
|
115,661
|
|
|
|
74,807
|
|
|
|
|
81,833
|
|
Non-operating expenses (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
38,547
|
|
|
|
43,660
|
|
|
|
46,164
|
|
|
|
42,311
|
|
|
|
28,765
|
|
|
|
|
|
|
Charges associated with mortgage refinancing
|
|
|
|
|
|
|
|
|
|
|
4,864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Write-off of debt issue costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,871
|
|
|
|
|
|
|
Other expense (income), net
|
|
|
601
|
|
|
|
(370
|
)
|
|
|
320
|
|
|
|
186
|
|
|
|
(516
|
)
|
|
|
|
614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before (benefit from) provision for income taxes
|
|
|
(48,137
|
)
|
|
|
(45,022
|
)
|
|
|
26,181
|
|
|
|
73,164
|
|
|
|
43,687
|
|
|
|
|
81,219
|
|
(Benefit from) provision for income taxes
|
|
|
(16,434
|
)
|
|
|
(17,077
|
)
|
|
|
10,349
|
|
|
|
28,561
|
|
|
|
17,781
|
|
|
|
|
30,782
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(31,703
|
)
|
|
$
|
(27,945
|
)
|
|
$
|
15,832
|
|
|
$
|
44,603
|
|
|
$
|
25,906
|
|
|
|
$
|
50,437
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: preferred stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income applicable to common stockholders
|
|
$
|
(31,703
|
)
|
|
$
|
(27,945
|
)
|
|
$
|
15,832
|
|
|
$
|
44,603
|
|
|
$
|
20,680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-acquisition
|
|
|
|
BlueLinx
|
|
|
|
Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inception
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(March 8,
|
|
|
|
Period from
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
2004)
|
|
|
|
January 4,
|
|
|
|
January 3,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
December 31,
|
|
|
to January 1,
|
|
|
|
2004 to May 7,
|
|
|
|
2009
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2005
|
|
|
|
2004
|
|
|
|
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average number of common shares outstanding
|
|
|
31,083
|
|
|
|
30,848
|
|
|
|
30,618
|
|
|
|
30,195
|
|
|
|
19,006
|
|
|
|
|
|
|
Basic net income (loss) per share applicable to common stock
|
|
$
|
(1.02
|
)
|
|
$
|
(0.91
|
)
|
|
$
|
0.52
|
|
|
$
|
1.48
|
|
|
$
|
1.09
|
|
|
|
|
|
|
Diluted weighted average number of common shares outstanding
|
|
|
31,083
|
|
|
|
30,848
|
|
|
|
30,779
|
|
|
|
30,494
|
|
|
|
20,296
|
|
|
|
|
|
|
Diluted net income per share applicable to common stock
|
|
$
|
(1.02
|
)
|
|
$
|
(0.91
|
)
|
|
$
|
0.51
|
|
|
$
|
1.46
|
|
|
$
|
1.02
|
|
|
|
|
|
|
Dividends declared per share of common stock
|
|
$
|
|
|
|
$
|
0.50
|
|
|
$
|
0.50
|
|
|
$
|
0.50
|
|
|
|
|
|
|
|
|
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
4,919
|
|
|
$
|
13,141
|
|
|
$
|
9,601
|
|
|
$
|
12,744
|
|
|
$
|
9,759
|
|
|
|
$
|
1,378
|
|
EBITDA(1)
|
|
|
10,929
|
|
|
|
19,562
|
|
|
|
97,933
|
|
|
|
134,245
|
|
|
|
85,455
|
|
|
|
|
87,394
|
|
Net cash provided by (used in) operating activities
|
|
|
181,271
|
|
|
|
79,842
|
|
|
|
63,204
|
|
|
|
124,937
|
|
|
|
137,246
|
|
|
|
|
(113,982
|
)
|
Net cash provided by (used in) investing activities
|
|
|
985
|
|
|
|
(9,070
|
)
|
|
|
(18,170
|
)
|
|
|
(28,499
|
)
|
|
|
(832,992
|
)
|
|
|
|
(1,126
|
)
|
Net cash provided by (used in) financing activities
|
|
$
|
(47,662
|
)
|
|
$
|
(82,055
|
)
|
|
$
|
(42,312
|
)
|
|
$
|
(87,690
|
)
|
|
$
|
711,318
|
|
|
|
$
|
114,602
|
|
Balance Sheet Data (at end of period):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
150,353
|
|
|
$
|
15,759
|
|
|
$
|
27,042
|
|
|
$
|
24,320
|
|
|
$
|
15,572
|
|
|
|
|
|
|
Working capital
|
|
|
320,527
|
|
|
|
448,731
|
|
|
|
520,237
|
|
|
|
529,983
|
|
|
|
491,975
|
|
|
|
|
|
|
Total assets
|
|
|
732,407
|
|
|
|
883,436
|
|
|
|
1,004,362
|
|
|
|
1,157,640
|
|
|
|
1,137,062
|
|
|
|
|
|
|
Total debt(2)
|
|
|
444,870
|
|
|
|
478,535
|
|
|
|
532,462
|
|
|
|
540,850
|
|
|
|
652,103
|
|
|
|
|
|
|
Shareholders equity/parents investment
|
|
$
|
102,852
|
|
|
$
|
154,823
|
|
|
$
|
189,399
|
|
|
$
|
183,852
|
|
|
$
|
141,492
|
|
|
|
|
|
|
|
|
|
(1) |
|
EBITDA is an amount equal to net income (loss) plus interest
expense, write-off of debt issue costs, charges associated with
mortgage refinancing, income taxes, and depreciation and
amortization. EBITDA is presented herein because we believe it
is a useful supplement to cash flow from operations in
understanding cash flows generated from operations that are
available for debt service (interest and principal payments) and
further investment in acquisitions. However, EBITDA is not a
presentation made in accordance with generally accepted
accounting principles in the United States, GAAP,
and is not intended to present a superior measure of the
financial condition from those determined under GAAP. EBITDA, as
used herein, is not necessarily comparable to other similarly
titled captions of other companies due to differences in methods
of calculations. |
|
(2) |
|
Total debt represents long-term debt, including current
maturities. |
21
A reconciliation of net cash provided by (used in) operating
activities, the most directly comparable GAAP measure, to EBITDA
for each of the respective periods indicated is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-acquisition
|
|
|
|
BlueLinx
|
|
|
|
Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
Period from
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Inception (March 8,
|
|
|
|
January 4,
|
|
|
|
January 3,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
December 31,
|
|
|
2004) to January 1,
|
|
|
|
2004 to May 7,
|
|
|
|
2009
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2005
|
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
|
(Unaudited)
|
|
Net cash provided by (used in) operating activities
|
|
$
|
181,271
|
|
|
$
|
79,842
|
|
|
$
|
63,204
|
|
|
$
|
124,937
|
|
|
$
|
137,246
|
|
|
|
$
|
(113,982
|
)
|
Amortization of debt issue costs
|
|
|
(2,479
|
)
|
|
|
(2,431
|
)
|
|
|
(2,628
|
)
|
|
|
(3,629
|
)
|
|
|
(2,323
|
)
|
|
|
|
|
|
Non-cash vacant property charges
|
|
|
(4,441
|
)
|
|
|
(11,037
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax (provision) benefit
|
|
|
2,935
|
|
|
|
9,526
|
|
|
|
3,700
|
|
|
|
368
|
|
|
|
4,469
|
|
|
|
|
(9,183
|
)
|
Prepayment fees associated with sale of property
|
|
|
(1,868
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of properties
|
|
|
1,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain from insurance settlement
|
|
|
|
|
|
|
1,698
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
(2,614
|
)
|
|
|
(3,500
|
)
|
|
|
(3,137
|
)
|
|
|
(2,170
|
)
|
|
|
(1,088
|
)
|
|
|
|
|
|
Excess tax benefits from share-based arrangements
|
|
|
81
|
|
|
|
20
|
|
|
|
891
|
|
|
|
71
|
|
|
|
|
|
|
|
|
|
|
Changes in assets and liabilities
|
|
|
(186,005
|
)
|
|
|
(81,139
|
)
|
|
|
(20,610
|
)
|
|
|
(56,204
|
)
|
|
|
(99,395
|
)
|
|
|
|
179,777
|
|
Interest expense
|
|
|
38,547
|
|
|
|
43,660
|
|
|
|
46,164
|
|
|
|
42,311
|
|
|
|
28,765
|
|
|
|
|
|
|
(Benefit from) provision for income taxes
|
|
|
(16,434
|
)
|
|
|
(17,077
|
)
|
|
|
10,349
|
|
|
|
28,561
|
|
|
|
17,781
|
|
|
|
|
30,782
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
10,929
|
|
|
$
|
19,562
|
|
|
$
|
97,933
|
|
|
$
|
134,245
|
|
|
$
|
85,455
|
|
|
|
$
|
87,394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ITEM 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
|
The following discussion should be read in conjunction with
our consolidated financial statements and related notes and
other financial information appearing elsewhere in this
Form 10-K.
In addition to historical information, the following discussion
and other parts of this
Form 10-K
contain forward-looking information that involves risks and
uncertainties. Our actual results could differ materially from
those anticipated by this forward-looking information due to the
factors discussed under Risk Factors,
Cautionary Statement Concerning Forward-Looking
Statements and elsewhere in this
Form 10-K.
Overview
Company
Background
BlueLinx is a leading distributor of building products in the
United States. As of January 3, 2009, we distributed more than
10,000 products to approximately 11,500 customers through our
network of more than 70 warehouses and third-party operated
warehouses which serve all major metropolitan markets in the
United States. We distribute products in two principal
categories: structural products and specialty products.
Structural products include plywood, OSB, rebar and remesh,
lumber and other wood products primarily used for structural
support, walls and flooring in construction projects. Structural
products represented approximately 50% and 54% of our fiscal
2008 and fiscal 2007 gross sales, respectively. Specialty
products include roofing, insulation, moulding, engineered wood,
vinyl products (used primarily in siding) and metal products
(excluding rebar and remesh). Specialty products accounted for
approximately 50% and 46% of our fiscal 2008 and fiscal
2007 gross sales, respectively.
22
A number of factors cause our results of operations to fluctuate
from period to period. Many of these factors are seasonal or
cyclical in nature. Conditions in the United States housing
market are at historically low levels and continued to
deteriorate throughout fiscal 2008. Our operating results have
declined during the past two years as they are closely tied to
U.S. housing starts. Additionally, the mortgage markets
have experienced substantial disruption due to a rising number
of defaults in the subprime market. This disruption
and the related defaults have increased the inventory of homes
for sale and also have caused lenders to tighten mortgage
qualification criteria which further reduces demand for new
homes. Forecasters continue to have a bearish outlook for the
housing market and we expect the downturn in new housing
activity will continue to negatively impact our operating
results for the foreseeable future. We continue to prudently
manage our inventories, receivables and spending in this
environment. However, along with many forecasters, we believe
U.S. housing demand will improve in the long term based on
population demographics and a variety of other factors.
Selected
Factors that Affect our Operating Results
Our operating results are affected by housing starts, mobile
home production, industrial production, repair and remodeling
spending and non-residential construction. We believe a
substantial percentage of our sales are directly related to new
home construction.
Our operating results are also impacted by changes in product
prices. Structural products prices can vary significantly based
on short-term and long-term changes in supply and demand. The
prices of specialty products also can vary from time to time,
although they generally are significantly less variable than
structural products.
The following table sets forth changes in net sales by product
category, sales variances due to changes in unit volume and
dollar and percentage changes in unit volume and price, in each
case for fiscal 2008, fiscal 2007 and fiscal 2006:
Sales
Revenue Variances by Product
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2008
|
|
|
Fiscal 2007
|
|
|
Fiscal 2006
|
|
|
|
(Dollars in millions)
|
|
|
Sales by Category
|
|
|
|
|
|
|
|
|
|
|
|
|
Structural Products
|
|
$
|
1,422
|
|
|
$
|
2,098
|
|
|
$
|
2,788
|
|
Specialty Products
|
|
|
1,412
|
|
|
|
1,802
|
|
|
|
2,197
|
|
Other(1)
|
|
|
(54
|
)
|
|
|
(66
|
)
|
|
|
(86
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Sales
|
|
$
|
2,780
|
|
|
$
|
3,834
|
|
|
$
|
4,899
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales Variances
|
|
|
|
|
|
|
|
|
|
|
|
|
Unit Volume $ Change
|
|
$
|
(1,161
|
)
|
|
$
|
(896
|
)
|
|
$
|
(398
|
)
|
Price/Other(1)
|
|
|
107
|
|
|
|
(169
|
)
|
|
|
(325
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total $ Change
|
|
$
|
1,054
|
|
|
$
|
(1,065
|
)
|
|
$
|
(723
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unit Volume% Change
|
|
|
(29.7
|
)%
|
|
|
(18.0
|
)%
|
|
|
(7.0
|
)%
|
Price/Other(1)
|
|
|
2.2
|
%
|
|
|
(3.7
|
)%
|
|
|
(5.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total% Change
|
|
|
(27.5
|
)%
|
|
|
(21.7
|
)%
|
|
|
(12.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Other includes unallocated allowances and discounts. |
23
The following table sets forth changes in gross margin dollars
and percentages by product category, and percentage changes in
unit volume growth by product, in each case for fiscal 2008,
fiscal 2007 and fiscal 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2008
|
|
|
Fiscal 2007
|
|
|
Fiscal 2006
|
|
|
|
(Dollars in millions)
|
|
|
Gross Margin $ by Category
|
|
|
|
|
|
|
|
|
|
|
|
|
Structural Products
|
|
$
|
134
|
|
|
$
|
173
|
|
|
$
|
194
|
|
Specialty Products
|
|
|
200
|
|
|
|
238
|
|
|
|
308
|
|
Other(1)
|
|
|
(19
|
)
|
|
|
(19
|
)
|
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Gross Margin $
|
|
$
|
315
|
|
|
$
|
392
|
|
|
$
|
480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin % by Category
|
|
|
|
|
|
|
|
|
|
|
|
|
Structural Products
|
|
|
9.4
|
%
|
|
|
8.2
|
%
|
|
|
7.0
|
%
|
Specialty Products
|
|
|
14.2
|
%
|
|
|
13.2
|
%
|
|
|
14.0
|
%
|
Total Gross Margin %
|
|
|
11.3
|
%
|
|
|
10.2
|
%
|
|
|
9.8
|
%
|
Unit Volume Change by Product
|
|
|
|
|
|
|
|
|
|
|
|
|
Structural Products
|
|
|
(34.6
|
)%
|
|
|
(19.2
|
)%
|
|
|
(11.8
|
)%
|
Specialty Products
|
|
|
(24.0
|
)%
|
|
|
(16.4
|
)%
|
|
|
1.0
|
%
|
Total Unit Volume Change %
|
|
|
(29.7
|
)%
|
|
|
(18.0
|
)%
|
|
|
(7.0
|
)%
|
|
|
|
(1) |
|
Other includes unallocated allowances and discounts. |
The following table sets forth changes in net sales and gross
margin by channel and percentage changes in gross margin by
channel, in each case for fiscal 2008, fiscal 2007 and fiscal
2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2008
|
|
|
Fiscal 2007
|
|
|
Fiscal 2006
|
|
|
|
(Dollars in millions)
|
|
|
Sales by Channel
|
|
|
|
|
|
|
|
|
|
|
|
|
Warehouse/Reload
|
|
$
|
2,044
|
|
|
$
|
2,763
|
|
|
$
|
3,326
|
|
Direct
|
|
|
790
|
|
|
|
1,137
|
|
|
|
1,659
|
|
Other(1)
|
|
|
(54
|
)
|
|
|
(66
|
)
|
|
|
(86
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,780
|
|
|
$
|
3,834
|
|
|
$
|
4,899
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin by Channel
|
|
|
|
|
|
|
|
|
|
|
|
|
Warehouse/Reload
|
|
$
|
284
|
|
|
$
|
344
|
|
|
$
|
407
|
|
Direct
|
|
|
50
|
|
|
|
67
|
|
|
|
95
|
|
Other(1)
|
|
|
(19
|
)
|
|
|
(19
|
)
|
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
315
|
|
|
$
|
392
|
|
|
$
|
480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin % by Channel
|
|
|
|
|
|
|
|
|
|
|
|
|
Warehouse/Reload
|
|
|
13.9
|
%
|
|
|
12.5
|
%
|
|
|
12.2
|
%
|
Direct
|
|
|
6.3
|
%
|
|
|
5.9
|
%
|
|
|
5.7
|
%
|
Other(1)
|
|
|
NA
|
|
|
|
NA
|
|
|
|
NA
|
|
Total
|
|
|
11.3
|
%
|
|
|
10.2
|
%
|
|
|
9.8
|
%
|
|
|
|
(1) |
|
Other includes unallocated allowances and discounts. |
Fiscal
Year
Our fiscal year is a 52- or 53-week period ending on the
Saturday closest to the end of the calendar year. The fiscal
year 2008 contained 53 weeks. Fiscal years 2007 and 2006
each contained 52 weeks.
24
Results
of Operations
Fiscal
2008 Compared to Fiscal 2007
The following table sets forth our results of operations for
fiscal 2008 and fiscal 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
% of
|
|
|
Year Ended
|
|
|
% of
|
|
|
|
January 3,
|
|
|
Net
|
|
|
December 29,
|
|
|
Net
|
|
|
|
2009
|
|
|
Sales
|
|
|
2007
|
|
|
Sales
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
Net sales
|
|
$
|
2,779,699
|
|
|
|
100.0
|
%
|
|
$
|
3,833,910
|
|
|
|
100.0
|
%
|
Gross profit
|
|
|
314,933
|
|
|
|
11.3
|
%
|
|
|
391,946
|
|
|
|
10.2
|
%
|
Selling, general and administrative
|
|
|
303,403
|
|
|
|
10.9
|
%
|
|
|
372,754
|
|
|
|
9.7
|
%
|
Depreciation and amortization
|
|
|
20,519
|
|
|
|
0.7
|
%
|
|
|
20,924
|
|
|
|
0.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(8,989
|
)
|
|
|
(0.3
|
)%
|
|
|
(1,732
|
)
|
|
|
0.0
|
%
|
Interest expense
|
|
|
38,547
|
|
|
|
1.4
|
%
|
|
|
43,660
|
|
|
|
1.1
|
%
|
Other expense (income), net
|
|
|
601
|
|
|
|
0.0
|
%
|
|
|
(370
|
)
|
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before benefit from income taxes
|
|
|
(48,137
|
)
|
|
|
(1.7
|
)%
|
|
|
(45,022
|
)
|
|
|
(1.2
|
)%
|
Benefit from income taxes
|
|
|
(16,434
|
)
|
|
|
(0.6
|
)%
|
|
|
(17,077
|
)
|
|
|
(0.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(31,703
|
)
|
|
|
(1.1
|
)%
|
|
$
|
(27,945
|
)
|
|
|
(0.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales. For the fiscal year ended
January 3, 2009, net sales decreased by 27.5%, or
$1.1 billion, to $2.8 billion. Sales during the fiscal
year were negatively impacted by a 33.3% decline in housing
starts. New home construction has a significant impact on our
sales. Specialty sales, primarily consisting of roofing,
specialty panels, insulation, moulding, engineered wood
products, vinyl siding, composite decking and metal products
(excluding rebar and remesh) decreased by $0.4 billion or
21.6% compared to fiscal 2007, primarily due to a 24.0% decrease
in unit volume offset by an increase in price of 2.4%.
Structural sales, including plywood, OSB, lumber and metal
rebar, decreased by $0.7 billion, or 32.2% from a year ago,
primarily as a result of a decrease in unit volume of 34.6%
offset by an increase in price of 2.4%.
Gross Profit. Gross profit for fiscal 2008 was
$315 million, or 11.3% of sales, compared to
$392 million, or 10.2% of sales, in fiscal 2007. The
decrease in gross profit dollars compared to fiscal 2007 was
primarily driven by a decrease in specialty and structural
product volumes due to the continued decline in the housing
market and a lower of cost or market reserve charge of
$3.4 million during fiscal 2008 related to a decline in
prices for our structural metal inventory. The increase in gross
margin percentage is primarily attributable to an increase in
certain structural metal prices earlier in the year and a shift
in product mix from structural to higher margin specialty
products. Additionally, we estimate that the stock keeping unit
(SKU) rationalization program negatively impacted
gross margin by approximately 30 basis points in fiscal
2007. Structural gross margin increased to 9.4% in fiscal 2008
from 8.2% in fiscal 2007. Specialty gross margin increased to
14.2% in fiscal 2008 from 13.2% a year ago.
Selling, General and Administrative
Expenses. Selling, general and administrative
expenses for fiscal 2008 were $303 million, or 10.9% of net
sales, compared to $373 million, or 9.7% of net sales,
during fiscal 2007. The decline in operating expenses is due to
our continuing efforts to reduce ongoing annual operating
expenses resulting in reduced payroll, commissions, and other
operating expenses. Operating expenses during fiscal 2008
include net charges related to facility consolidations,
severance related costs, and other items of $8.4 million
compared with prior year operating expenses which included
$15.2 million of similar charges.
Depreciation and Amortization. Depreciation
and amortization expense totaled $20.5 million for fiscal
2008, compared with $20.9 million for fiscal 2007. The
decrease in depreciation and amortization is primarily due to a
decrease in capital expenditures for mobile equipment consisting
of trucks, trailers, forklifts and automobiles.
Operating Loss. Operating loss for fiscal 2008
was $9.0 million versus an operating loss of
$1.7 million for fiscal 2007 due to the above factors.
25
Interest Expense. Interest expense for fiscal
2008 totaled $38.5 million, down $5.1 million from
fiscal 2007, reflecting lower debt levels and lower interest
rates. Interest expense related to our revolving credit
facility, mortgage, and debt issue cost amortization was
$14.8 million, $19.3 million and $2.5 million,
respectively, for fiscal 2008. Fiscal 2008 also included charges
of $1.9 million of prepayment fees associated with
principal payments on the mortgage.
Interest expense totaled $43.7 million for fiscal 2007,
which includes interest expense related to our revolving credit
facility, mortgage, and related debt issue cost amortization of
$22.3 million, $19.0 million, and $2.4 million,
respectively.
Benefit from Income Taxes. Our effective tax
rate was 34.1% and 37.9% for fiscal 2008 and fiscal 2007,
respectively. The decrease in the effective tax rate was
primarily due to a valuation allowance of $1.2 million
recorded in fiscal 2008 primarily related to state income
deferred tax assets, higher non-deductible amounts and
provisions for U.S. taxes on unremitted earnings in foreign
jurisdictions.
Net Loss. Net loss for fiscal 2008 was
$31.7 million, compared to net loss of $27.9 million
for fiscal 2007.
On a per-share basis, basic and diluted loss applicable to
common stockholders for fiscal 2008 were each $1.02. Basic and
diluted loss per share for fiscal 2007 were each $0.91.
Fiscal
2007 Compared to Fiscal 2006
The following table sets forth our results of operations for
fiscal 2007 and fiscal 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
% of
|
|
|
Year Ended
|
|
|
% of
|
|
|
|
December 29,
|
|
|
Net
|
|
|
December 30,
|
|
|
Net
|
|
|
|
2007
|
|
|
Sales
|
|
|
2006
|
|
|
Sales
|
|
|
|
(Dollars in thousands)
|
|
|
Net sales
|
|
$
|
3,833,910
|
|
|
|
100.0
|
%
|
|
$
|
4,899,383
|
|
|
|
100.0
|
%
|
Gross profit
|
|
|
391,946
|
|
|
|
10.2
|
%
|
|
|
479,807
|
|
|
|
9.8
|
%
|
Selling, general and administrative
|
|
|
372,754
|
|
|
|
9.7
|
%
|
|
|
381,554
|
|
|
|
7.8
|
%
|
Depreciation and amortization
|
|
|
20,924
|
|
|
|
0.5
|
%
|
|
|
20,724
|
|
|
|
0.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(1,732
|
)
|
|
|
0.0
|
%
|
|
|
77,529
|
|
|
|
1.6
|
%
|
Interest expense
|
|
|
43,660
|
|
|
|
1.1
|
%
|
|
|
46,164
|
|
|
|
0.9
|
%
|
Charges associated with mortgage refinancing
|
|
|
|
|
|
|
0.0
|
%
|
|
|
4,864
|
|
|
|
0.1
|
%
|
Other (income) expense, net
|
|
|
(370
|
)
|
|
|
0.0
|
%
|
|
|
320
|
|
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before (benefit from) provision for income taxes
|
|
|
(45,022
|
)
|
|
|
(1.2
|
)%
|
|
|
26,181
|
|
|
|
0.5
|
%
|
(Benefit from) provision for income taxes
|
|
|
(17,077
|
)
|
|
|
(0.4
|
)%
|
|
|
10,349
|
|
|
|
0.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(27,945
|
)
|
|
|
(0.7
|
)%
|
|
$
|
15,832
|
|
|
|
0.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales. For the fiscal year ended
December 29, 2007, net sales decreased by 21.7%, or
$1.1 billion, to $3.8 billion. Sales during the fiscal
year were negatively impacted by a 24.8% decline in housing
starts and a 1.3% decline in prices for certain grades of
wood-based structural products. New home construction has a
significant impact on our sales. Specialty sales, primarily
consisting of roofing, specialty panels, insulation, moulding,
engineered wood products, vinyl siding, composite decking and
metal products (excluding rebar and remesh) decreased by
$395 million or 18.0% compared to fiscal 2006, primarily
due to a 16.4% decrease in unit volume as well as a decrease in
price of 1.6%. Structural sales, including plywood, OSB, lumber
and metal, decreased by $690 million, or 24.7% from a year
ago, primarily as a result of a decrease in unit volume of 19.2%
and a decrease in price of 5.5%.
Gross Profit. Gross profit for fiscal 2007 was
$392 million, or 10.2% of sales, compared to
$480 million, or 9.8% of sales, in fiscal 2006. The
decrease in gross profit dollars compared to fiscal 2006 was
primarily driven by a decrease in specialty and structural
product volumes due to the continued decline in the housing
26
market. The increase in gross margin percentage of 0.4% is
primarily attributable to a shift toward the warehouse channel,
which typically provides higher gross margins, and a slight
shift in product mix from structural to higher margin specialty
products, offset in part by a decline in underlying product
prices compared to the prior year as well as our SKU
rationalization initiative during the fourth quarter of 2007. We
estimate that the SKU rationalization program negatively
impacted gross margin by approximately 30 basis points in
fiscal 2007. During fiscal 2007, we remained focused on
maintaining gross margin through our ongoing management of
structural product pricing. Structural gross margin increased to
8.2% in fiscal 2007 from 7.0% in fiscal 2006. Specialty gross
margin of 13.2% compares with 14.0% a year ago.
Selling, General and Administrative
Expenses. Selling, general and administrative
expenses for fiscal 2007 were $373 million, or 9.7% of net
sales, compared to $382 million, or 7.8% of net sales,
during fiscal 2006. The decline in operating expenses is due to
our continued efforts to reduce ongoing annual operating
expenses partially offset by net charges related to facility
consolidations, severance related costs, and other items of
$15.2 million.
Depreciation and Amortization. Depreciation
and amortization expense totaled $20.9 million for fiscal
2007, compared with $20.7 million for fiscal 2006. The
increase in depreciation and amortization is primarily due to a
slight increase in capital expenditures for mobile equipment
consisting of trucks, trailers, forklifts and automobiles.
Operating Income (Loss). Operating loss for
fiscal 2007 was $1.7 million versus operating income of
$77.5 million for fiscal 2006 due to the above factors.
Interest Expense. Interest expense for fiscal
2007 totaled $43.7 million, down $2.5 million from
fiscal 2006, reflecting lower debt levels offset in part by
slightly higher interest rates. Interest expense related to our
revolving credit facility, mortgage, and debt issue cost
amortization was $22.3 million, $19.0 million and
$2.4 million, respectively, for fiscal 2007.
Interest expense totaled $46.2 million for fiscal 2006,
which includes interest expense related to our revolving credit
facility, new mortgage, old mortgage and related debt issue cost
amortization of $27.8 million, $10.7 million, $5.1 and
$2.6 million, respectively.
Provision for (Benefit from) Income Taxes. Our
effective tax rate was 37.9% and 39.5% for fiscal 2007 and
fiscal 2006, respectively. The decrease in the effective tax
rate resulted from the greater impact of various tax credits due
to lower income for fiscal 2007
Net Income(Loss). Net loss for fiscal 2007 was
$27.9 million, compared to net income of $15.8 million
for fiscal 2006.
On a per-share basis, basic and diluted loss applicable to
common stockholders for fiscal 2007 were each $0.91. Basic and
diluted income per share for fiscal 2006 were $0.52 and $0.51,
respectively.
Seasonality
We are exposed to fluctuations in quarterly sales volumes and
expenses due to seasonal factors. These seasonal factors are
common in the building products distribution industry. The first
and fourth quarters are typically our slowest quarters due to
the impact of poor weather on the construction market. Our
second and third quarters are typically our strongest quarters,
reflecting a substantial increase in construction due to more
favorable weather conditions. Our working capital and accounts
receivable and payable generally peak in the third quarter,
while inventory generally peaks in the second quarter in
anticipation of the summer building season. Although, we
generally expect these trends to continue for the foreseeable
future, we have reduced our inventory as part of our effort to
manage to the current weakened demand environment in the housing
market. Additionally, our accounts receivable balance has
declined due to the weakened demand environment for the products
we distribute.
Liquidity
and Capital Resources
We depend on cash flow from operations and funds available under
our revolving credit facility to finance working capital needs,
capital expenditures, dividends and acquisitions. We believe
that the amounts available
27
from this and other sources will be sufficient to fund our
routine operations and capital requirements for the foreseeable
future.
The credit markets have recently experienced adverse conditions,
which may adversely affect our lenders ability to fulfill their
commitment under our revolving credit facility. Based on
information available to us as of the filing date of this
Form 10-K,
we have no indications that the financial institutions included
in our revolving credit facility would be unable to fulfill
their commitments.
Part of our growth strategy is to selectively pursue
acquisitions. Accordingly, depending on the nature of the
acquisition or currency, we may use cash or stock, or a
combination of both, as acquisition currency. Our cash
requirements may significantly increase and incremental cash
expenditures will be required in connection with the integration
of the acquired companys business and to pay fees and
expenses in connection with any acquisitions. To the extent that
significant amounts of cash are expended in connection with
acquisitions, our liquidity position may be adversely impacted.
In addition, there can be no assurance that we will be
successful in completing acquisitions in the future or in
implementing our acquisition strategy. For a discussion of the
risks associated with our acquisition strategy, see the risk
factor Integrating acquisitions may be time-consuming
and create costs that could reduce our net income and cash
flows set forth under Item 1A Risk
Factors.
The following tables indicate our working capital and cash flows
for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
January 3,
|
|
|
December 29,
|
|
|
|
2009
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
|
Working capital
|
|
$
|
320,527
|
|
|
$
|
448,731
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
January 3,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2009
|
|
|
2007
|
|
|
2006
|
|
|
Cash flows provided by operating activities
|
|
$
|
181,271
|
|
|
$
|
79,842
|
|
|
$
|
63,204
|
|
Cash flows provided by (used in) investing activities
|
|
|
985
|
|
|
|
(9,070
|
)
|
|
|
(18,170
|
)
|
Cash flows used in financing activities
|
|
$
|
(47,662
|
)
|
|
$
|
(82,055
|
)
|
|
$
|
(42,312
|
)
|
Working
Capital
Working capital decreased by $128 million, primarily as a
result of decreases in accounts receivable and inventories of
$133 million and $146 million, respectively, and an
increase in current maturities of long-term debt of
$60.0 million. These changes were partially offset by
decreases in accounts payable of $86.4 million. The
remaining decreases were related to reductions in other
receivables and cash collateral. Additionally, cash increased
from $15.8 million at December 29, 2007 to
$150 million at January 3, 2009, primarily due to
reductions in working capital. The $150 million of cash on
our balance sheet at January 3, 2009 primarily reflects
cash generated due to reductions in working capital and customer
remittances received in our lock-boxes on Friday and Saturday
that are not available until the next Monday, which is part of
the following period.
Operating
Activities
During fiscal 2008, cash flows provided by operating activities
totaled $181 million. The primary driver of cash flow from
operations was an increase in cash flow from operations related
to working capital of $213 million reflecting decreases in
accounts receivable and a reduction in inventory partially
offset by a contribution to the hourly pension plan of
$7.5 million, and a net loss, as adjusted for non-cash
charges, of $4.7 million.
During fiscal 2007, cash flows provided by operating activities
totaled $79.8 million. The primary driver of cash flow from
operations was an increase in cash flow from operations related
to working capital of $81.8 million reflecting decreases in
accounts receivable and a reduction in inventory, partially
offset by a net loss, as adjusted for non-cash charges, of
$1.3 million.
28
During fiscal 2006, cash flows provided by operating activities
totaled $63.2 million. The primary drivers of cash flow
from operations were net income, as adjusted for non-cash
charges, of $43.5 million and an increase in cash flow from
operations related to working capital of $23.2 million
reflecting decreases in accounts receivable and a reduction in
structural product inventory, partially offset by decreases in
accounts payable and a slight increase in specialty products
inventory.
Investing
Activities
During fiscal 2008 and fiscal 2007, cash flows provided by (used
in) investing activities totaled $1.0 million and
$(9.1) million, respectively.
During fiscal 2008 and fiscal 2007, our expenditures for
property and equipment were $4.9 million and
$13.1 million, respectively. These expenditures were used
primarily to purchase mobile equipment consisting of trucks,
trailers, forklifts and sales force automobiles. We estimate
that capital expenditures for 2009 will be approximately
$5.0 million for normal operating activities. Our 2009
capital expenditures are anticipated to be paid from our current
cash.
Proceeds from the disposition of property and equipment totaled
$5.9 million and $4.1 million during fiscal 2008 and
fiscal 2007, respectively. The proceeds of $5.9 million
during fiscal 2008 included $4.7 million of proceeds
related to the sale of certain real properties. For fiscal 2007,
the proceeds of $4.1 million included $2.6 million
from an insurance settlement related to property damage from
Hurricane Katrina.
During fiscal 2006, cash flows used for investing activities
totaled $18.2 million. The primary driver of cash flows
from investing activities in fiscal 2006 was acquisition-related
expenditures and expenditures for property and equipment of
$9.4 million and $9.6 million, respectively. The
expenditures for property and equipment were primarily for
mobile equipment.
Proceeds from the disposition of property totaled
$0.8 million in fiscal 2006.
Financing
Activities
Net cash used in financing activities was $47.7 million
during fiscal 2008 and $82.1 million during fiscal 2007.
The net cash used in financing activities in fiscal 2008
primarily reflected a net decrease in our revolving credit
facility of $27.5 million, a decrease in bank overdrafts of
$12.4 million, principal payments on our mortgage of
$6.1 million, and prepayment fees associated with principal
payments on our mortgage of $1.9 million. The net cash used
in financing activities in fiscal 2007 primarily reflected a net
decrease in our revolving credit facility of $53.9 million,
decrease in bank overdrafts of $13.1 million, and common
dividend payments of $15.6 million. There were no common
dividend payments during fiscal 2008.
Net cash used in financing activities was $42.3 million for
fiscal 2006, which primarily resulted from the retirement of the
old mortgage of $165 million, a net decrease in the
revolving credit facility of $138 million, common dividends
payments of $15.4 million, and a decrease in bank
overdrafts of $12.2 million. These decreases were offset by
proceeds from the new mortgage of $295 million.
Debt
and Credit Sources
As of January 3, 2009, advances outstanding under our
revolving credit facility were approximately $156 million.
Borrowing availability was approximately $192 million and
outstanding letters of credit on this facility were
approximately $12.9 million. As of January 3, 2009,
the interest rate on outstanding balances under the revolving
credit facility was 3.2%.
On June 9, 2006, certain special purpose entities that are
wholly-owned subsidiaries of ours entered into a
$295 million mortgage loan with the German American Capital
Corporation. During the fourth quarter of fiscal 2008, we
reduced the principal amount of the mortgage loan by
$6.1 million. The mortgage has a term of ten years and is
now secured by 56 distribution facilities and 1 office building
owned by the special purpose entities. The stated interest rate
on the mortgage is fixed at 6.35%. The mortgage loan requires
interest-only payments for the first five years followed by
level monthly payments of principal and interest based on an
29
amortization period of thirty years. The balance of the loan
outstanding at the end of ten years will then become due and
payable. German American Capital Corporation assigned half of
its interest in the new mortgage loan to Wachovia Bank, National
Association. This mortgage replaced our previously existing
$165 million floating rate mortgage, which had a 7.4%
interest rate when it was terminated, with a fixed rate mortgage
loan.
During the fourth quarter of fiscal 2008, we sold certain real
properties that ceased operations and were closed during the
second quarter of fiscal 2008. As a result of the sale of one of
these properties, we reduced our mortgage loan by
$6.1 million and incurred a mortgage prepayment penalty of
$1.9 million. The sale of these properties resulted in a
recognized gain of $1.9 million, a note receivable of
$6.3 million recorded in Other non-current
assets and a deferred gain of $6.3 million recorded
in Other non-current liabilities.
On June 12, 2006, we entered into an interest rate swap
agreement with Goldman Sachs Capital Markets, to hedge against
interest rate risks related to our variable rate revolving
credit facility. The interest rate swap has a notional amount of
$150 million and the terms call for us to receive interest
monthly at a variable rate equal to the
30-day LIBOR
and to pay interest monthly at a fixed rate of 5.4%. This
interest rate swap is designated as a cash flow hedge.
Through January 3, 2009, the hedge was highly effective in
offsetting changes in expected cash flows as the critical terms
of the interest rate swap generally match the critical terms of
the variable rate revolving credit facility. Fluctuations in the
fair value of the ineffective portion, if any, of the cash flow
hedge are reflected in current period earnings. These amounts
were immaterial during fiscal 2008, fiscal 2007 and fiscal 2006.
At January 3, 2009 and December 29, 2007, the fair
value of the interest rate swap was a liability of
$13.2 million and $7.1 million, respectively. These
balances were included in Other current liabilities
and Other long-term liabilities on the Consolidated
Balance Sheets. At January 3, 2009, we had approximately
$13.2 million of cash collateral held related to the
interest rate swap liability. Accumulated other comprehensive
(loss) income at January 3, 2009 and December 29, 2007
included the net loss on the cash flow hedge (net of tax) of
$8.0 million and $4.3 million, respectively, which
reflects the cumulative amount of comprehensive loss recognized
in connection with the change in fair value of the swap.
During January 2009, we reduced our borrowings under the
revolving credit facility by $60.0 million at which point
the hedge became ineffective in offsetting changes in expected
cash flows during the remaining term of the interest rate swap.
We used cash on hand to pay down this portion of our revolving
credit debt. The repayment of borrowings under the revolving
credit facility resulted in a non-cash charge of approximately
$5.9 million recorded in interest expense at the payment
date. The remaining $8.8 million of other comprehensive
loss will be amortized over the remaining 28 month term of
the interest rate swap and recorded as interest expense.
Approximately $3.9 million will be amortized over the next
12 months and recorded as interest expense. All future
changes in the fair value of the interest rate swap during the
remaining term of the interest rate swap will be recorded as
interest expense. Any further reductions in borrowings under our
revolving credit facility will result in a pro-rata reduction in
accumulated other comprehensive loss at the payment date with a
corresponding charge recorded to interest expense.
30
Contractual Commitments. The following table
represents our contractual commitments, excluding interest,
associated with our debt and other obligations disclosed above
as of January 3, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
Thereafter
|
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
|
Revolving credit facility(1)
|
|
$
|
60,000
|
|
|
$
|
|
|
|
$
|
90,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
150,000
|
|
Term loan facility(2)
|
|
|
|
|
|
|
|
|
|
|
6,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,000
|
|
Mortgage indebtedness(3)
|
|
|
|
|
|
|
|
|
|
|
1,712
|
|
|
|
3,593
|
|
|
|
3,885
|
|
|
|
279,680
|
|
|
|
288,870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
60,000
|
|
|
|
|
|
|
|
97,712
|
|
|
|
3,593
|
|
|
|
3,885
|
|
|
|
279,680
|
|
|
|
444,870
|
|
Purchase obligations(4)
|
|
|
23,911
|
|
|
|
7,970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,881
|
|
Operating leases
|
|
|
7,854
|
|
|
|
6,815
|
|
|
|
5,216
|
|
|
|
4,534
|
|
|
|
4,416
|
|
|
|
22,646
|
|
|
|
51,481
|
|
Letters of credit(5)
|
|
|
12,870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
104,635
|
|
|
$
|
14,785
|
|
|
$
|
102,298
|
|
|
$
|
8,127
|
|
|
$
|
8,301
|
|
|
$
|
302,326
|
|
|
$
|
541,102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Interest on the revolving credit facility is variable, based on
14-day,
one-month, two-month, three-month or six-month LIBOR. The
interest rate on the revolving credit facility was 3.2% at
January 3, 2009. On June 12, 2006, we entered into an
interest swap agreement with Goldman Sachs Capital Markets to
hedge against interest rate risks on $150 million of our
revolving credit facility. The terms call for us to pay interest
monthly at 5.4%. Annual interest at these rates totals
$8.3 million. At January 3, 2009, the outstanding
balance of our credit facility was approximately
$156 million. During January 2009, we reduced our
borrowings under the revolving credit facility by
$60.0 million. We used cash on hand to pay down this
portion of our revolving credit debt. The final maturity date of
the revolving credit facility is May 7, 2011. |
|
(2) |
|
Term loan facility was used to refinance and consolidate certain
loans made by the revolving loan lenders to us. |
|
(3) |
|
The interest rate on the mortgage is fixed at 6.35%. Annual
interest at this rate is $18.3 million. |
|
(4) |
|
Our purchase obligations are related to our Supply Agreement
with Georgia-Pacific. |
|
(5) |
|
Letters of credit not included above under the credit facilities. |
Purchase orders entered into in the ordinary course of business
are excluded from the above table. Amounts for which we are
liable under purchase orders are reflected on our Consolidated
Balance Sheets (to the extent entered into prior to the end of
the applicable period) as accounts payable and accrued
liabilities.
Critical
Accounting Policies
Our significant accounting policies are more fully described in
the Notes to the Consolidated Financial Statements. Certain of
our accounting policies require the application of significant
judgment by management in selecting the appropriate assumptions
for calculating financial estimates. As with all judgments, they
are subject to an inherent degree of uncertainty. These
judgments are based on our historical experience, current
economic trends in the industry, information provided by
customers, vendors and other outside sources and
managements estimates, as appropriate.
The following are accounting policies that management believes
are important to the portrayal of our financial condition and
results of operations and require managements most
difficult, subjective or complex judgment.
Revenue
Recognition
We recognize revenue when the following criteria are met:
persuasive evidence of an agreement exists, delivery has
occurred or services have been rendered, our price to the buyer
is fixed and determinable and collectibility is reasonably
assured. Delivery is not considered to have occurred until the
customer takes title and assumes the risks and rewards of
ownership. The timing of revenue recognition is largely
dependent on shipping terms. Revenue is recorded at the time of
shipment for terms designated as FOB (free on board)
31
shipping point. For sales transactions designated FOB
destination, revenue is recorded when the product is delivered
to the customers delivery site.
All product sales are recorded at gross in accordance with the
guidance outlined by Emerging Issues Task Force
99-19,
Reporting Revenue Gross as a Principal versus Net as an
Agent
(EITF 99-19)
and in accordance with standard industry practice. The key
indicators used to determine this are as follows:
|
|
|
|
|
We are the primary obligor responsible for fulfillment;
|
|
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|
We hold title to all reload inventory and are responsible for
all product returns;
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We control the selling price for all channels;
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We select the supplier; and
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We bear all credit risk.
|
We also provide delivery and product management services for
which the associated revenues are recognized upon completion of
services. These revenues represent less than 1% of our net sales.
All revenues recognized are net of trade allowances, cash
discounts and sales returns. Cash discounts and sales returns
are estimated using historical experience. Trade allowances are
based on the estimated obligations and historical experience.
Adjustments to earnings resulting from revisions to estimates on
discounts and returns have been insignificant for fiscal 2008,
fiscal 2007 and fiscal 2006.
Allowance
for Doubtful Accounts and Related Reserves
We evaluate the collectibility of accounts receivable based on
numerous factors, including past transaction history with
customers and their creditworthiness. We maintain an allowance
for doubtful accounts for each aging category on our aged trial
balance based on our historical loss experience. This estimate
is periodically adjusted when we become aware of specific
customers inability to meet their financial obligations
(e.g., bankruptcy filing or other evidence of liquidity
problems). As we determine that specific balances will be
ultimately uncollectible, we remove them from our aged trial
balance. Additionally, we maintain reserves for cash discounts
that we expect customers to earn as well as expected returns. At
January 3, 2009 and December 29, 2007, these reserves
totaled $10.1 million and $10.5 million, respectively.
Adjustments to earnings resulting from revisions to estimates on
discounts and uncollectible accounts have been insignificant for
fiscal 2008, fiscal 2007 and fiscal 2006.
Inventory
Valuation
Inventories are carried at the lower of cost or market. The cost
of all inventories is determined by the moving average cost
method. We evaluate our inventory value at the end of each
quarter to ensure that first quality, actively moving inventory,
when viewed by category, is carried at the lower of cost or
market. At January 3, 2009 and December 29, 2007, the
lower of cost or market reserve totaled $3.4 million and
$0.02 million, respectively.
Additionally, we maintain a reserve for the estimated value
impairment associated with damaged, excess and obsolete
inventory. The damaged, excess and obsolete reserve generally
includes inventory that has turn days in excess of
270 days, excluding new items during their product launch,
or discontinued items. At January 3, 2009 and
December 29, 2007, our damaged, excess and obsolete
inventory reserves totaled $4.0 million and
$4.4 million, respectively. Adjustments to earnings
resulting from revisions to damaged, excess and obsolete
estimates have been insignificant for fiscal 2008, fiscal 2007
and fiscal 2006.
Stock-Based
Compensation
Under Statement of Financial Accounting Standards No. 123R,
Shared-Based Payment (SFAS 123R),
we recognize compensation expense equal to the grant-date fair
value for all share-based payment awards that are expected to
vest. This expense is recorded on a straight-line basis over the
requisite service period of the entire award, unless the awards
are subject to market or performance conditions, in which case
we recognize
32
compensation expense over the requisite service period of each
separate vesting tranche. All compensation expense related to
our share-based payment awards is recorded in Selling,
general and administrative expense in the Consolidated
Statements of Operations.
Compensation expense arising from stock-based awards granted to
employees and non-employee directors is recognized as expense
using the straight-line method over the vesting period. As of
January 3, 2009, there was $1.7 million,
$3.7 million, $0.1 million and $0.7 million of
total unrecognized compensation expense related to stock
options, restricted stock, restricted stock units and
performance shares, respectively. The unrecognized compensation
expense for stock options, restricted stock, restricted stock
units and performance shares is expected to be recognized over a
period of 2.1 years, 2.0 years, 1.0 years and
2.0 years, respectively. As of December 29, 2007 there
was $3.2 million, $2.1 million $0.4 million and
$0.4 million of total unrecognized compensation expense
related to stock options, restricted stock, restricted stock
units and performance shares, respectively. The unrecognized
compensation expense for stock options, restricted stock,
restricted stock units and performance shares was expected to be
recognized over a period of 3.0 years, 2.7 years,
2.3 years and 2.0 years, respectively.
For fiscal 2008, fiscal 2007 and fiscal 2006, our total
stock-based compensation expense was $2.6 million,
$3.6 million, and $3.1 million, respectively. We also
recognized related income tax benefits of $0.7 million,
$1.4 million and $1.2 million, respectively.
Consideration
Received from Vendors and Paid to Customers
Each year, we enter into agreements with many of our vendors
providing for inventory purchase rebates, generally based on
achievement of specified volume purchasing levels and various
marketing allowances that are common industry practice. We
accrue for the receipt of vendor rebates based on purchases, and
also reduce inventory value to reflect the net acquisition cost
(purchase price less expected purchase rebates). At
January 3, 2009 and December 29, 2007, the vendor
rebate receivable totaled $6.3 million and
$7.5 million, respectively.
In addition, we enter into agreements with many of our customers
to offer customer rebates, generally based on achievement of
specified volume sales levels and various marketing allowances
that are common industry practice. We accrue for the payment of
customer rebates based on sales to the customer, and also reduce
sales value to reflect the net sales (sales price less expected
customer rebates). At January 3, 2009 and December 29,
2007, the customer rebate payable totaled $7.3 million and
$11.1 million, respectively. Adjustments to earnings
resulting from revisions to rebate estimates have been
insignificant for fiscal 2008, fiscal 2007 and fiscal 2006.
Impairment
of Long-Lived Assets
Under Statement of Financial Accounting Standards No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets (SFAS 144), long-lived assets,
including property and equipment and intangible assets with
definite useful lives, are reviewed for possible impairment
whenever events or circumstances indicate that the carrying
amount of an asset may not be recoverable. Determining whether
an impairment has occurred typically requires various estimates
and assumptions, including determining which cash flows are
directly related to the potentially impaired asset, the useful
life over which cash flows will occur, their amount and the
assets residual value, if any. In turn, measurement of an
impairment loss requires a determination of fair value, which is
based on the best information available. We use internal cash
flow estimates, quoted market prices when available and
independent appraisals as appropriate to determine fair value.
We derive the required cash flow estimates from our historical
experience and our internal business plans and apply an
appropriate discount rate. Our fair value estimate for fixed
assets and intangible long-lived assets are considered to be
level 3 measurements in the fair value hierarchy as defined
in Note 10. If these projected cash flows are less than the
carrying amount, an impairment loss is recognized based on the
fair value of the asset less any costs of disposition. Our
judgment regarding the existence of impairment indicators is
based on market and operational performance. During fiscal 2008,
we recorded a non-cash impairment charge of $0.4 million
($0.2 million after tax) to reduce the carrying value of
certain long-lived assets to fair value. These costs were
included in Selling, general and administrative
expense in the Consolidated Statement of
33
Operations. There were no adjustments to earnings resulting from
the impairment of long-lived assets for fiscal 2007 and fiscal
2006.
Income
Taxes
Deferred income tax assets and income tax benefits are provided
for temporary differences between amounts recorded for financial
reporting and income tax purposes. If, for some reason, the
combination of future years income (or loss) combined with the
reversal of temporary differences results in a loss, such losses
can be carried back to prior years or carried forward to future
years to recover the deferred tax assets. In accordance with
SFAS No. 109, Accounting for Income Taxes
(SFAS 109), we evaluate our deferred tax assets
quarterly to determine if valuation allowances are required.
SFAS 109 requires that companies assess whether valuation
allowances should be established based on the consideration of
all available evidence using a more likely than not
standard.
In evaluating our ability to recover our deferred income tax
assets, we consider all available positive and negative
evidence, including our past operating results, our ability to
carryback losses against prior taxable income, the existence of
cumulative losses in the most recent years, tax planning
strategies, our forecast of future taxable income and the
existence of an excess of appreciated assets over the tax basis
of our net assets in amounts sufficient to realize our deferred
tax assets. In estimating future taxable income, we develop
assumptions including the amount of future state and federal
pretax operating and non-operating income, the reversal of
temporary differences and the implementation of feasible and
prudent tax planning strategies. These assumptions require
significant judgment about the forecasts of future taxable
income. During fiscal 2008, we recorded a $1.4 million
valuation allowance primarily related to state deferred tax
assets, of which $1.2 million reduced the benefit from
income taxes.
We have recorded deferred income tax assets of
$36.8 million and $21.9 million at January 3,
2009 and December 29, 2007, reflecting the benefit of
$94.6 million and $56.0 million of deductible
temporary differences, respectively. Realization is dependent on
generating sufficient taxable income in future years.
In fiscal 2007, we adopted the provisions of FASB Interpretation
No. 48, Accounting for Uncertainty in Income
Taxes (FIN 48) which prescribes a
comprehensive model for how a company should recognize, measure,
present and disclose in its financial statements uncertain tax
positions that the company has taken or expects to take on a tax
return (including a discussion of whether to file or not to file
a return in a particular jurisdiction). The cumulative effect of
applying FIN 48 is reported as an adjustment to the opening
balance of retained earnings. Adoption of FIN 48 on
December 31, 2006 did not have a material effect on our
consolidated financial position or results of operations.
Restructuring
Charges
During fiscal 2008 and fiscal 2007, we recorded restructuring
charges totaling $9.7 million and $17.1 million
related to certain cost reduction initiatives. In connection
with those cost reduction initiatives, we vacated leased office
space and certain distribution facilities. We accounted for
these transactions in accordance with Statement of Financial
Accounting Standards No. 146, Accounting for Costs
Associated with Exit or Disposal Activities
(SFAS 146), which requires that a liability be
recognized for a cost associated with an exit or disposal
activity at fair value in the period in which it is incurred or
when the entity ceases using the right conveyed by a contract
(i.e., the right to use a leased property). Our restructuring
charges included accruals for estimated losses on facility costs
based on our contractual obligations net of estimated sublease
income based on current comparable market rates for leases. We
will reassess this liability periodically based on market
conditions. Revisions to our estimates of this liability could
materially impact our operating results and financial position
in future periods if anticipated events and key assumptions,
such as the timing and amounts of sublease rental income, either
do not materialize or change. At January 3, 2009 and
December 29, 2007, the vacant property reserve totaled
$14.1 and $11.3 million, respectively. During fiscal 2008,
we recorded approximately $2.4 million of expense related
to a change in estimate associated with one of our exited
facilities. These costs were included in Selling, general
and administrative expense in the
34
Consolidated Statement of Operations and in Other current
liabilities, and in Other long-term
liabilities on the Consolidated Balance Sheets at
January 3, 2009 and December 29, 2007.
Self-Insurance
It is our policy to self-insure, up to certain limits,
traditional risks including workers compensation,
comprehensive general liability, and auto liability. Our
self-insured deductible for each claim involving workers
compensation, comprehensive general liability (including product
liability claims), and auto liability is limited to
$0.8 million, $1.0 million, and $2.0 million,
respectively. We are also self-insured up to certain limits for
certain other insurable risks, primarily physical loss to
property ($0.1 million per occurrence) and the majority of
our medical benefit plans. Insurance coverage is maintained for
catastrophic property and casualty exposures as well as those
risks required to be insured by law or contract. A provision for
claims under this self-insured program, based on our estimate of
the aggregate liability for claims incurred, is revised and
recorded annually. The estimate is derived from both internal
and external sources including but not limited to actuarial
estimates. The actuarial estimates are subject to uncertainty
from various sources, including, among others, changes in claim
reporting patterns, claim settlement patterns, judicial
decisions, legislation, and economic conditions. Although, we
believe that the actuarial estimates are reasonable, significant
differences related to the items noted above could materially
affect our self-insurance obligations, future expense and cash
flow. At January 3, 2009 and December 29, 2007, the
self-insurance reserves totaled $8.9 million and
$7.3 million, respectively.
Recently
Issued Accounting Pronouncements
In December 2008, the FASB issued FASB Staff Position
No. 132(R)-1, Employers Disclosures about
Pensions and Other Postretirement Benefits
(FSP 132R-1). FSP 132R-1 requires enhanced
disclosures about the plan assets of our defined benefit pension
and other postretirement plans. The enhanced disclosures
required by this FSP are intended to provide users of financial
statements with a greater understanding of: (1) how
investment allocation decisions are made, including the factors
that are pertinent to an understanding of investment policies
and strategies; (2) the major categories of plan assets;
(3) the inputs and valuation techniques used to measure the
fair value of plan assets; (4) the effect of fair value
measurements using significant unobservable inputs
(Level 3) on changes in plan assets for the period;
and (5) significant concentrations of risk within plan
assets. FSP 132R-1 is effective for us for the year ending
January 2, 2010.
In June 2008, the FASB issued FSP No. Emerging Issues Task
Force (EITF)
03-6-1,
Determining Whether Instruments Granted in Share-Based
Payment Transactions are Participating Securities
(FSP 03-6-1).
FSP 03-6-1
clarifies that unvested share-based payment awards that contain
nonforfeitable rights to dividends or dividend equivalents
(whether paid or unpaid) are participating securities and are to
be included in the computation of earnings per share under the
two-class method described in Statement of Financial Accounting
Standards No. 128, Earnings Per Share. This FSP
is effective for us on January 4, 2009 and requires all
presented prior-period earnings per share data to be adjusted
retrospectively. We are still in the process of evaluating the
impact
FSP 03-6-1
will have on our Consolidated Financial Statements. For
additional information about our share-based payment awards,
refer to Note 2 of the Notes to Consolidated Financial
Statements in our
Form 10-K.
In May 2008, the FASB issued Statement of Financial Accounting
Standards No. 162, The Hierarchy of Generally
Accepted Accounting Principles
(SFAS 162). SFAS 162 identifies the
sources of accounting principles and the framework for selecting
the principles to be used in the preparation of financial
statements that are presented in conformity with generally
accepted accounting principles in the United States. This
Statement is effective 60 days following the SECs
approval of the Public Company Accounting Oversight Board
amendments to AU Section 411, The Meaning of Present
Fairly in Conformity with Generally Accepted Accounting
Principles. We do not expect SFAS 162 to have a
material impact on our Consolidated Financial Statements.
In April 2008, the FASB issued FASB Staff Position
No. 142-3,
Determination of the Useful Life of Intangible
Assets
(FSP 142-3).
FSP 142-3
amends the factors to be considered in developing renewal or
35
extension assumptions used to determine the useful life of
intangible assets under Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible
Assets. Its intent is to improve the consistency between
the useful life of an intangible asset and the period of
expected cash flows used to measure its fair value.
FSP 142-3
is effective for us on January 4, 2009. We do not expect it
to have a material impact on our Consolidated Financial
Statements.
In March 2008, the FASB issued Statement of Financial Accounting
Standards No. 161, Disclosures about Derivative
Instruments and Hedging Activities An Amendment of
SFAS 133 (SFAS 161).
SFAS No. 161 seeks to improve financial reporting for
derivative instruments and hedging activities by requiring
enhanced disclosures regarding the impact on financial position,
financial performance, and cash flows. To achieve this increased
transparency, SFAS 161 requires (1) the disclosure of
the fair value of derivative instruments and gains and losses in
a tabular format; (2) the disclosure of derivative features
that are credit risk-related; and (3) cross-referencing
within the footnotes. SFAS 161 is effective for us, on a
prospective basis, on January 4, 2009.. We are still in the
process of evaluating the impact of SFAS 161, but do not
expect it to have a material impact on our Consolidated
Financial Statements.
In December 2007, the FASB issued Statement of Financial
Accounting Standards No. 141 (revised 2007) Business
Combinations (SFAS 141R). SFAS 141R
establishes principles and requirements for how the acquirer of
a business recognizes and measures in its financial statements
the identifiable assets acquired, the liabilities assumed, and
any non-controlling interest in the acquiree. SFAS 141R
also provides guidance for recognizing and measuring the
goodwill acquired in the business combination and determines
what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the
business combination. SFAS 141R is effective for us, on a
prospective basis, on January 4, 2009. We expect
SFAS 141R will have an impact on our accounting for future
business combinations once adopted, but the effect is dependent
upon the acquisitions that are made in the future.
In June 2007, the EITF reached a consensus on Emerging Issues
Task Forces Issue
No. 06-11,
Accounting for Income Tax Benefits of Dividends on
Share-Based Payment Awards
(EITF 06-11).
EITF 06-11
requires companies to recognize a realized income tax benefit
associated with dividends or dividend equivalents paid on
non-vested equity-classified employee share-based payment awards
that are charged to retained earnings as an increase to
additional paid-in capital.
EITF 06-11
was effective for us on December 30, 2007. The adoption of
EITF 06-11
did not have a material impact on our Consolidated Financial
Statements.
In February, 2007, the FASB issued Statement of Financial
Accounting Standards No. 159 The Fair Value Option
for Financial Assets and Financial Liabilities
(SFAS 159). SFAS 159 permits entities to
choose to measure many financial assets and financial
liabilities at fair value. Unrealized gains and losses on items
for which the fair value option has been elected are reported in
earnings. SFAS 159 was effective for us on
December 30, 2007. We have elected to not adopt the fair
value option in measuring certain financial assets and
liabilities.
In September 2006, the FASB issued Statement of Financial
Accounting Standards No. 157, Fair Value
Measurements (SFAS 157), which defines
fair value, establishes a framework for measuring fair value
under GAAP, and expands disclosures about fair value
measurements. SFAS 157 applies to other accounting
pronouncements that require or permit fair value measurements.
The new guidance was effective for us on December 30, 2007,
and for interim periods within those fiscal years. In February
2008, FASB Staff Position
No. 157-1
Application of FASB Statement No. 157 to FASB
Statement No. 13 and Other Accounting Pronouncements That
Address Fair Value Measurements for Purposes of Lease
Classification or Measurement under Statement 13
(FSP 157-1)
was issued.
FSP 157-1
removed leasing transactions accounted for under Statement 13
and related guidance from the scope of SFAS 157. FASB Staff
Position No
157-2
Partial Deferral of the Effective Date of Statement
157
(FSP 157-2)
deferred the effective date of SFAS 157 for all
nonfinancial assets and nonfinancial liabilities to fiscal years
beginning after November 15, 2008. On October 10,
2008, the FASB issued FASB Staff Position
No. 157-3,
Determining the Fair Value of a Financial Asset When the
Market for That Asset Is Not Active
(FSP 157-3).
FSP 157-3
clarifies the application of SFAS 157 in a market that is
not active and provides an example to illustrate key
considerations in
36
determining the fair value of a financial asset when the market
for that financial asset is not active.
FSP 157-3
was effective immediately upon issuance, and includes prior
periods for which financial statements have not been issued. We
applied the guidance contained in
FSP 157-3
in determining fair values beginning on September 30, 2008,
although it did not have a material impact on our Consolidated
Financial Statements.
SFAS 157, defines fair value as the price that would be
received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the
measurement date (exit price). SFAS 157 classifies inputs
used to measure fair value into the following hierarchy:
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Level 1
|
|
Unadjusted quoted prices in active markets for identical assets
or liabilities.
|
Level 2
|
|
Unadjusted quoted prices in active markets for similar assets or
liabilities, or
|
|
|
Unadjusted quoted prices for identical or similar assets or
liabilities in markets that are not active, or
|
|
|
Inputs other than quoted prices that are observable for the
asset or liability.
|
Level 3
|
|
Unobservable inputs for the asset or liability.
|
We are exposed to market risks from changes in interest rates,
which may affect our operating results and financial position.
When deemed appropriate, we minimize our risks from interest
rate fluctuations through the use of an interest rate swap. This
derivative financial instrument is used to manage risk and is
not used for trading or speculative purposes. The swap is valued
using a valuation model that has inputs other than quoted market
prices that are both observable and unobservable.
We endeavor to utilize the best available information in
measuring the fair value of the interest rate swap. The interest
rate swap is classified in its entirety based on the lowest
level of input that is significant to the fair value
measurement. To determine fair value of the interest rate swap
we used the discounted estimated future cash flows methodology.
Assumptions critical to our fair value in the period were: (i.)
the present value factors used in determining fair value (ii.)
projected LIBOR, and (iii.) the risk of counterparty
non-performance risk. These and other assumptions are impacted
by economic conditions and expectations of management. We have
determined that the fair value of our interest rate swap is a
level 3 measurement in the fair value hierarchy. The
level 3 measurement is the risk of counterparty
non-performance on the interest rate swap liability that is not
secured by cash collateral. The risk of counterparty
non-performance did not affect the fair value at January 3,
2009 due to the fact that the interest rate swap was supported
by cash collateral. The fair value of the interest rate swap was
a liability of $13.2 million and $7.1 million at
January 3, 2009 and December 29, 2007, respectively.
The implementation of SFAS 157 for financial assets and
financial liabilities, effective December 30, 2007, did not
have a material impact on our consolidated financial position
and results of operations. We have elected the provisions of
FSP 157-2;
however, we do not expect the implementation of SFAS 157
for non-financial assets and non-financial liabilities to have a
material impact on our consolidated financial position and
results of operations.
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ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
|
We are exposed to risks such as changes in interest rates,
commodity prices and foreign currency exchange rates. We employ
a variety of practices to manage these risks, including
operating and financing activities and, where deemed
appropriate, the use of derivative instruments. Derivative
instruments are used only for risk management purposes and not
for speculation or trading, and are not used to address risks
related to foreign currency exchange rates.
In accordance with SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, as amended,
we record derivative instruments as assets or liabilities on the
balance sheet at fair value.
Less than 1.0% of our net sales are denominated in currencies
other than the U.S. dollar, and we do not believe our total
exposure to currency fluctuations to be significant.
We believe that general inflation did not significantly affect
our operating results or markets in fiscal 2008, fiscal 2007 or
fiscal 2006. As discussed above, our results of operations were
both favorably and
37
unfavorably impacted by increases and decreases in the pricing
of certain commodity-based products. Commodity price
fluctuations have from time to time created cyclicality in our
financial performance and may do so in the future.
On June 9, 2006, certain special purpose entities that are
wholly-owned subsidiaries of ours entered into a
$295 million mortgage loan with the German American Capital
Corporation. The mortgage has a term of ten years and a fixed
interest rate of 6.35%. By entering into this mortgage, we
insulated ourselves from changes in market interest rates on a
portion of our indebtedness. This mortgage replaced our
previously existing $165 million floating rate mortgage,
which had a 7.4% interest rate when it was terminated.
On June 12, 2006, we entered into an interest rate swap
agreement with Goldman Sachs Capital Markets, to hedge against
interest rate risks related to our variable rate revolving
credit facility. The interest rate swap has a notional amount of
$150 million and the terms call for us to receive interest
monthly at a variable rate equal to the
30-day LIBOR
and to pay interest monthly at a fixed rate of 5.4%. This
interest rate swap is designated as a cash flow hedge.
At January 3, 2009 and December 29, 2007, the fair
value of the interest rate swap was a liability of
$13.2 million and $7.1 million, respectively. These
balances were included in Other current liabilities
and Other long-term liabilities on the Consolidated
Balance Sheet. At January 3, 2009, we had approximately
$13.2 million of cash collateral held related to the
interest rate swap liability. Accumulated other comprehensive
(loss) income at January 3, 2009 and December 29, 2007
included the net loss on the cash flow hedge (net of tax) of
$8.0 million and $4.3 million, respectively, which
reflects the cumulative amount of comprehensive loss recognized
in connection with the change in fair value of the swap.
Our revolving credit facility accrues interest based on a
floating benchmark rate (the prime rate or LIBOR rate), plus an
applicable margin. A change in interest rates under the
revolving credit facility would have an impact on our results of
operations. A change of 100 basis points in the market rate
of interest would have an immaterial impact based on borrowings
outstanding at January 3, 2009. Additionally, to the extent
changes in interest rates impact the housing market, we would be
impacted by such changes.
38
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA.
|
Index to
Financial Statements and Supplemental Data
|
|
|
|
|
|
|
Page
|
|
|
|
|
40
|
|
|
|
|
41
|
|
|
|
|
43
|
|
|
|
|
44
|
|
|
|
|
45
|
|
|
|
|
46
|
|
|
|
|
47
|
|
39
BLUELINX
HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENTS
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
To the Shareholders of BlueLinx Holdings Inc.:
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in
Rule 13a-15(f)
under the Securities Exchange Act of 1934. Our internal control
over financial reporting is designed to provide reasonable
assurance to our management and board of directors regarding the
preparation and fair presentation of published financial
statements.
Our management, including our chief executive officer and our
chief financial officer, does not expect that our internal
controls over financial reporting will prevent all errors and
all fraud. Internal controls, no matter how well designed and
operated, can provide only reasonable, not absolute, assurance
that the objectives of the internal controls are met. Given the
inherent limitations of internal controls, internal controls
over financial reporting may not prevent or detect all
misstatements or fraud. Therefore, no evaluation of internal
control can provide absolute assurance that all control issues
or instances of fraud will be prevented or detected.
Management assessed the effectiveness of our internal control
over financial reporting as of January 3, 2009. In making
this assessment, management used the criteria established by the
Committee of Sponsoring Organizations of the Treadway Commission
set forth in Internal Control Integrated
Framework. Based on our assessment, our management concluded
that, as of January 3, 2009, our internal control over
financial reporting was effective. Ernst & Young LLP, our
independent registered public accounting firm, has issued an
attestation report on our internal control over financial
reporting as of January 3, 2009.
March 5, 2009
40
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of BlueLinx Holdings Inc.
We have audited BlueLinx Holdings Inc.s internal control
over financial reporting as of January 3, 2009, based on
criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (the COSO criteria). BlueLinx Holdings
Inc.s management is responsible for maintaining effective
internal control over financial reporting, and for its
assessment of the effectiveness of internal control over
financial reporting included in the accompanying
Managements Report on Internal Control Over Financial
Reporting. Our responsibility is to express an opinion on the
Companys internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, BlueLinx Holdings Inc. maintained, in all
material respects, effective internal control over financial
reporting as of January 3, 2009, based on the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
2008 Consolidated Financial Statements of BlueLinx Holdings Inc.
and subsidiaries and our report dated March 5, 2009
expressed an unqualified opinion thereon.
Atlanta, Georgia
March 5, 2009
41
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of BlueLinx Holdings
Inc.
We have audited the accompanying consolidated balance sheets of
BlueLinx Holdings Inc. and subsidiaries as of January 3,
2009 and December 29, 2007 and the related consolidated
statements of operations and comprehensive (loss) income,
shareholders equity, and cash flows for the years ended
January 3, 2009, December 29, 2007 and
December 30, 2006. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of BlueLinx Holdings Inc. and subsidiaries at
January 3, 2009 and December 29, 2007, and the
consolidated results of their operations and their cash flows
for the years ended January 3, 2009, December 29, 2007
and December 30, 2006, in conformity with
U.S. generally accepted accounting principles.
As discussed in Note 6, in 2006, BlueLinx Holdings Inc.
adopted the measurement date provisions of Statement of
Financial Accounting Standards No. 158,
Employers Accounting for Defined Benefit Pension and
other Postretirement Plans. Also, as discussed, in
Note 6, in 2008, BlueLinx Holdings Inc. adopted the
recognition provisions of Statement of Financial Accounting
Standards No. 158.
Also as discussed in Note 2, in 2007, BlueLinx Holdings
Inc. adopted the provisions of Financial Accounting Standards
Board Interpretation No. 48, Accounting for
Uncertainty in Income Taxes an interpretation of
FASB Statement No. 109.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
BlueLinx Holdings Inc.s internal control over financial
reporting as of January 3, 2009, based on criteria
established in Internal Control-Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated March 5, 2009 expressed an
unqualified opinion thereon.
Atlanta, Georgia
March 5, 2009
42
BLUELINX
HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
January 3,
|
|
|
December 29,
|
|
|
|
2009
|
|
|
2007
|
|
|
|
(In thousands, except share data)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
150,353
|
|
|
$
|
15,759
|
|
Receivables, less allowances of $10,114 in fiscal 2008 and
$10,536 in fiscal 2007
|
|
|
130,653
|
|
|
|
263,176
|
|
Inventories, net
|
|
|
189,482
|
|
|
|
335,887
|
|
Deferred income taxes
|
|
|
11,868
|
|
|
|
12,199
|
|
Other current assets
|
|
|
37,351
|
|
|
|
53,231
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
519,707
|
|
|
|
680,252
|
|
|
|
|
|
|
|
|
|
|
Property and equipment:
|
|
|
|
|
|
|
|
|
Land and improvements
|
|
|
53,426
|
|
|
|
57,295
|
|
Buildings
|
|
|
96,159
|
|
|
|
98,420
|
|
Machinery and equipment
|
|
|
70,491
|
|
|
|
67,217
|
|
Construction in progress
|
|
|
2,035
|
|
|
|
4,212
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, at cost
|
|
|
222,111
|
|
|
|
227,144
|
|
Accumulated depreciation
|
|
|
(69,336
|
)
|
|
|
(54,702
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
152,775
|
|
|
|
172,442
|
|
Non-current deferred income taxes
|
|
|
17,468
|
|
|
|
2,628
|
|
Other non-current assets
|
|
|
42,457
|
|
|
|
28,114
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
732,407
|
|
|
$
|
883,436
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
78,367
|
|
|
$
|
164,717
|
|
Bank overdrafts
|
|
|
24,715
|
|
|
|
37,152
|
|
Accrued compensation
|
|
|
11,552
|
|
|
|
10,372
|
|
Current maturities of long-term debt
|
|
|
60,000
|
|
|
|
|
|
Other current liabilities
|
|
|
24,546
|
|
|
|
19,280
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
199,180
|
|
|
|
231,521
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities:
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
384,870
|
|
|
|
478,535
|
|
Other non-current liabilities
|
|
|
45,505
|
|
|
|
18,557
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
629,555
|
|
|
|
728,613
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Common Stock, $0.01 par value, 100,000,000 shares
authorized; 32,362,360 and 31,224,959 shares issued and
outstanding at January 3, 2009 and December 29, 2007,
respectively
|
|
|
323
|
|
|
|
312
|
|
Additional
paid-in-capital
|
|
|
144,148
|
|
|
|
142,081
|
|
Accumulated other comprehensive (loss) income
|
|
|
(16,920
|
)
|
|
|
5,426
|
|
(Accumulated deficit) retained earnings
|
|
|
(24,699
|
)
|
|
|
7,004
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
102,852
|
|
|
|
154,823
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
732,407
|
|
|
$
|
883,436
|
|
|
|
|
|
|
|
|
|
|
43
BLUELINX
HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS AND
COMPREHENSIVE (LOSS) INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
Fiscal Year
|
|
|
Fiscal Year
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
January 3,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2009
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands, except per share data)
|
|
|
Net sales
|
|
$
|
2,779,699
|
|
|
$
|
3,833,910
|
|
|
$
|
4,899,383
|
|
Cost of sales
|
|
|
2,464,766
|
|
|
|
3,441,964
|
|
|
|
4,419,576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
314,933
|
|
|
|
391,946
|
|
|
|
479,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general, and administrative
|
|
|
303,403
|
|
|
|
372,754
|
|
|
|
381,554
|
|
Depreciation and amortization
|
|
|
20,519
|
|
|
|
20,924
|
|
|
|
20,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
323,922
|
|
|
|
393,678
|
|
|
|
402,278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(8,989
|
)
|
|
|
(1,732
|
)
|
|
|
77,529
|
|
Non-operating expenses (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
38,547
|
|
|
|
43,660
|
|
|
|
46,164
|
|
Charges associated with mortgage refinancing
|
|
|
|
|
|
|
|
|
|
|
4,864
|
|
Other expense (income), net
|
|
|
601
|
|
|
|
(370
|
)
|
|
|
320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before (benefit from) provision for income taxes
|
|
|
(48,137
|
)
|
|
|
(45,022
|
)
|
|
|
26,181
|
|
(Benefit from) provision for income taxes
|
|
|
(16,434
|
)
|
|
|
(17,077
|
)
|
|
|
10,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(31,703
|
)
|
|
$
|
(27,945
|
)
|
|
$
|
15,832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average number of common shares outstanding
|
|
|
31,083
|
|
|
|
30,848
|
|
|
|
30,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net (loss) income per share applicable to common shares
|
|
$
|
(1.02
|
)
|
|
$
|
(0.91
|
)
|
|
$
|
0.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average number of common shares outstanding
|
|
|
31,083
|
|
|
|
30,848
|
|
|
|
30,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net (loss) income per share applicable to common shares
|
|
$
|
(1.02
|
)
|
|
$
|
(0.91
|
)
|
|
$
|
0.51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per common share
|
|
$
|
|
|
|
$
|
0.50
|
|
|
$
|
0.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive (loss) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(31,703
|
)
|
|
$
|
(27,945
|
)
|
|
$
|
15,832
|
|
Other comprehensive (loss) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation, net of taxes
|
|
|
(2,598
|
)
|
|
|
1,912
|
|
|
|
(58
|
)
|
Unrealized net (loss) gain from pension plan, net of taxes
|
|
|
(15,997
|
)
|
|
|
5,856
|
|
|
|
983
|
|
Unrealized loss from cash flow hedge, net of taxes
|
|
|
(3,751
|
)
|
|
|
(2,754
|
)
|
|
|
(1,536
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive (loss) income
|
|
$
|
(54,049
|
)
|
|
$
|
(22,931
|
)
|
|
$
|
15,221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44
BLUELINX
HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
Fiscal Year
|
|
|
Fiscal Year
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
January 3,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2009
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(31,703
|
)
|
|
$
|
(27,945
|
)
|
|
$
|
15,832
|
|
Adjustments to reconcile net (loss) income to cash provided by
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
20,519
|
|
|
|
20,924
|
|
|
|
20,724
|
|
Amortization of debt issue costs
|
|
|
2,479
|
|
|
|
2,431
|
|
|
|
2,628
|
|
Charges associated with mortgage refinancing
|
|
|
|
|
|
|
|
|
|
|
4,864
|
|
Non-cash vacant property charges
|
|
|
4,441
|
|
|
|
11,037
|
|
|
|
|
|
Deferred income tax benefit
|
|
|
(2,935
|
)
|
|
|
(9,526
|
)
|
|
|
(3,700
|
)
|
Prepayment fees associated with principal payments on new
mortgage
|
|
|
1,868
|
|
|
|
|
|
|
|
|
|
Gain from sale of properties
|
|
|
(1,936
|
)
|
|
|
|
|
|
|
|
|
Gain from insurance settlement
|
|
|
|
|
|
|
(1,698
|
)
|
|
|
|
|
Share-based compensation
|
|
|
2,614
|
|
|
|
3,500
|
|
|
|
2,921
|
|
Excess tax benefits from share-based compensation arrangements
|
|
|
(81
|
)
|
|
|
(20
|
)
|
|
|
(891
|
)
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
132,523
|
|
|
|
44,367
|
|
|
|
94,113
|
|
Inventories
|
|
|
146,405
|
|
|
|
74,799
|
|
|
|
66,504
|
|
Accounts payable
|
|
|
(86,350
|
)
|
|
|
(31,098
|
)
|
|
|
(131,594
|
)
|
Changes in other working capital
|
|
|
20,440
|
|
|
|
(6,211
|
)
|
|
|
(4,889
|
)
|
Other
|
|
|
(27,013
|
)
|
|
|
(718
|
)
|
|
|
(3,308
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
181,271
|
|
|
|
79,842
|
|
|
|
63,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions, net of cash acquired
|
|
|
|
|
|
|
|
|
|
|
(9,391
|
)
|
Property and equipment investments
|
|
|
(4,919
|
)
|
|
|
(13,141
|
)
|
|
|
(9,601
|
)
|
Proceeds from disposition of assets
|
|
|
5,904
|
|
|
|
4,071
|
|
|
|
822
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
985
|
|
|
|
(9,070
|
)
|
|
|
(18,170
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from stock options exercised
|
|
|
434
|
|
|
|
496
|
|
|
|
1,913
|
|
Excess tax benefits from share-based compensation arrangements
|
|
|
81
|
|
|
|
20
|
|
|
|
891
|
|
Net decrease in revolving credit facility
|
|
|
(27,535
|
)
|
|
|
(53,927
|
)
|
|
|
(138,388
|
)
|
Proceeds from new mortgage
|
|
|
|
|
|
|
|
|
|
|
295,000
|
|
Debt financing costs
|
|
|
(217
|
)
|
|
|
|
|
|
|
(6,703
|
)
|
Retirement of old mortgage
|
|
|
|
|
|
|
|
|
|
|
(165,000
|
)
|
Prepayment fees associated with old mortgage
|
|
|
|
|
|
|
|
|
|
|
(2,475
|
)
|
Principal payments on new mortgage
|
|
|
(6,130
|
)
|
|
|
|
|
|
|
|
|
Prepayment fees associated with principal payments on new
mortgage
|
|
|
(1,868
|
)
|
|
|
|
|
|
|
|
|
Decrease in bank overdrafts
|
|
|
(12,437
|
)
|
|
|
(13,089
|
)
|
|
|
(12,151
|
)
|
Common dividends paid
|
|
|
|
|
|
|
(15,591
|
)
|
|
|
(15,400
|
)
|
Other
|
|
|
10
|
|
|
|
36
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(47,662
|
)
|
|
|
(82,055
|
)
|
|
|
(42,312
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
134,594
|
|
|
|
(11,283
|
)
|
|
|
2,722
|
|
Cash and cash equivalents balance, beginning of period
|
|
|
15,759
|
|
|
|
27,042
|
|
|
|
24,320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents balance, end of period
|
|
$
|
150,353
|
|
|
$
|
15,759
|
|
|
$
|
27,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income tax refunds (income taxes paid) during the period
|
|
$
|
22,762
|
|
|
$
|
(991
|
)
|
|
$
|
(21,467
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid during the period
|
|
$
|
36,854
|
|
|
$
|
40,037
|
|
|
$
|
42,636
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45
BLUELINX
HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-In-
|
|
|
Comprehensive
|
|
|
Retained
|
|
|
|
|
BlueLinx Holdings Inc.
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Income (Loss)
|
|
|
Earnings
|
|
|
Totals
|
|
|
|
(In thousands)
|
|
|
Balance, December 31, 2005
|
|
|
30,251
|
|
|
$
|
303
|
|
|
$
|
132,346
|
|
|
$
|
1,023
|
|
|
$
|
50,180
|
|
|
$
|
183,852
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,832
|
|
|
|
15,832
|
|
Foreign currency translation adjustment, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(58
|
)
|
|
|
|
|
|
|
(58
|
)
|
Unrealized net gain from pension plan, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
983
|
|
|
|
|
|
|
|
983
|
|
Unrealized loss from cash flow hedge, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,536
|
)
|
|
|
|
|
|
|
(1,536
|
)
|
Proceeds from stock options exercised
|
|
|
512
|
|
|
|
5
|
|
|
|
1,908
|
|
|
|
|
|
|
|
|
|
|
|
1,913
|
|
Issuance of restricted stock
|
|
|
147
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Excess tax benefits from share-based compensation arrangements
|
|
|
|
|
|
|
|
|
|
|
891
|
|
|
|
|
|
|
|
|
|
|
|
891
|
|
Compensation related to share-based grants
|
|
|
|
|
|
|
|
|
|
|
2,921
|
|
|
|
|
|
|
|
|
|
|
|
2,921
|
|
Common dividends paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,400
|
)
|
|
|
(15,400
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 30, 2006
|
|
|
30,910
|
|
|
$
|
309
|
|
|
$
|
138,066
|
|
|
$
|
412
|
|
|
$
|
50,612
|
|
|
$
|
189,399
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(27,945
|
)
|
|
|
(27,945
|
)
|
Foreign currency translation adjustment, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,912
|
|
|
|
|
|
|
|
1,912
|
|
Unrealized net gain from pension plan, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,856
|
|
|
|
|
|
|
|
5,856
|
|
Unrealized loss from cash flow hedge, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,754
|
)
|
|
|
|
|
|
|
(2,754
|
)
|
Unrealized loss from adoption of FIN 48, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(72
|
)
|
|
|
(72
|
)
|
Proceeds from stock options exercised
|
|
|
132
|
|
|
|
1
|
|
|
|
495
|
|
|
|
|
|
|
|
|
|
|
|
496
|
|
Issuance of restricted stock
|
|
|
182
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
Excess tax benefits from share-based compensation arrangements
|
|
|
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
20
|
|
Compensation related to share-based grants
|
|
|
|
|
|
|
|
|
|
|
3,500
|
|
|
|
|
|
|
|
|
|
|
|
3,500
|
|
Common dividends paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,591
|
)
|
|
|
(15,591
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 29, 2007
|
|
|
31,224
|
|
|
$
|
312
|
|
|
$
|
142,081
|
|
|
$
|
5,426
|
|
|
$
|
7,004
|
|
|
$
|
154,823
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(31,703
|
)
|
|
|
(31,703
|
)
|
Foreign currency translation adjustment, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,598
|
)
|
|
|
|
|
|
|
(2,598
|
)
|
Unrealized net loss from pension plan, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,997
|
)
|
|
|
|
|
|
|
(15,997
|
)
|
Unrealized loss from cash flow hedge, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,751
|
)
|
|
|
|
|
|
|
(3,751
|
)
|
Proceeds from stock options exercised
|
|
|
116
|
|
|
|
1
|
|
|
|
433
|
|
|
|
|
|
|
|
|
|
|
|
434
|
|
Issuance of restricted stock
|
|
|
1,022
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
Excess tax benefits from share-based compensation arrangements
|
|
|
|
|
|
|
|
|
|
|
81
|
|
|
|
|
|
|
|
|
|
|
|
81
|
|
Excess tax deficiencies from share-based compensation
arrangements
|
|
|
|
|
|
|
|
|
|
|
(1,061
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,061
|
)
|
Compensation related to share-based grants
|
|
|
|
|
|
|
|
|
|
|
2,614
|
|
|
|
|
|
|
|
|
|
|
|
2,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 3, 2009
|
|
|
32,362
|
|
|
$
|
323
|
|
|
$
|
144,148
|
|
|
$
|
(16,920
|
)
|
|
$
|
(24,699
|
)
|
|
$
|
102,852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46
BLUELINX
HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
1.
|
Basis of
Presentation and Background
|
Basis
of Presentation
BlueLinx Holdings Inc., operating through our wholly-owned
subsidiary, BlueLinx Corporation (BlueLinx Holdings Inc. and its
subsidiaries are collectively referred to as
BlueLinx or the Company), is a leading
distributor of building products in the United States. We
operate in all of the major metropolitan areas in the United
States and, as of January 3, 2009, we distributed more than
10,000 products to approximately 11,500 customers through our
network of more than 70 warehouses and third-party operated
warehouses. The Consolidated Financial Statements include the
accounts of us and our wholly-owned subsidiaries. All
significant intercompany accounts and transactions have been
eliminated. Our fiscal year is a 52 or 53-week period ending on
the Saturday closest to the end of the calendar year. Fiscal
2008 contained 53 weeks, fiscal 2007 and fiscal 2006 each
contained 52 weeks.
Nature
of Operations
We are a wholesale supplier of building products in North
America. We distribute building products including lumber,
structural panels (including plywood and oriented strand board),
hardwood plywood, roofing, insulation, metal products, vinyl
siding and particleboard. These products are sold to a
diversified customer base, including independent building
materials dealers, industrial and manufactured housing builders
and home improvement centers. Net sales by product category are
summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
Fiscal Year
|
|
|
Fiscal Year
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
January 3,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2009
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in millions)
|
|
|
Sales by category
|
|
|
|
|
|
|
|
|
|
|
|
|
Structural products
|
|
$
|
1,422
|
|
|
$
|
2,098
|
|
|
$
|
2,788
|
|
Specialty products
|
|
|
1,412
|
|
|
|
1,802
|
|
|
|
2,197
|
|
Unallocated allowances and adjustments
|
|
|
(54
|
)
|
|
|
(66
|
)
|
|
|
(86
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total sales
|
|
$
|
2,780
|
|
|
$
|
3,834
|
|
|
$
|
4,899
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Suppliers
As of January 3, 2009, our vendor base included over 750
suppliers of both structural and specialty building products. In
some cases, these products are branded. We have supply contracts
in place with many of our vendors. Terms for these agreements
frequently include prompt payment discounts and freight
allowances and occasionally include volume discounts, growth
incentives, marketing allowances, and consigned inventory.
Purchases of products manufactured by Georgia-Pacific
Corporation (Georgia-Pacific) accounted for
approximately 21% and approximately 25% of total purchases in
fiscal 2008 and fiscal 2007, respectively, with no other
supplier accounting for more than 5% of our fiscal 2008
purchases. On May 7, 2004, we entered into a Master
Purchase, Supply & Distribution Agreement with
Georgia-Pacific (the Supply Agreement). The Supply
Agreement details distribution rights by product categories,
including exclusivity rights and minimum supply volume
commitments from Georgia-Pacific with respect to certain
products. This agreement also details our purchase obligations
by product categories, including minimum purchase volume
commitments with respect to certain of the products supplied to
us. Based on 2008 average market prices, our purchase obligation
under the Supply Agreement is approximately $32 million for
the next two years. If we fail or refuse to purchase any
products that we are obligated to purchase pursuant to the
Supply Agreement, Georgia-Pacific has the right to sell products
to third parties and for certain products terminate our
exclusivity, and we may be required to pay monetary penalties.
47
BLUELINX
HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
On June 6, 2008, Georgia-Pacific notified us of its intent
to terminate this supply agreement, effective May 7, 2010.
On February 12, 2009, Georgia-Pacific and BlueLinx entered
into a new three-year agreement governing the purchase and sale
of engineered lumber products between the two parties.
Georgia-Pacific and BlueLinx are currently in discussions
regarding new agreements which would govern the purchase, supply
and distribution arrangements between the two parties after
May 7, 2010 for products other than engineered lumber.
Georgia-Pacific and BlueLinx are continuing to work together
pursuant to the terms of the existing Supply Agreement for the
purchase and sale of products not covered by the new engineered
lumber agreement.
Business
Combinations
We account for business combinations in accordance with the
provisions of Statement of Financial Accounting Standards
No. 141 Business Combinations
(SFAS 141) , which results in a new valuation
of the assets and liabilities acquired based upon the fair
values on the date of the purchase.
On August 4, 2006, we completed the acquisition of
Texas-based hardwood lumber distribution company, Austin
Hardwoods, Ltd. The acquisition of Austin Hardwoods was
accounted for using the purchase method of accounting, and the
assets acquired and liabilities assumed were accounted for based
on their fair market values at the date of consummation. The
acquisition was not significant to our Consolidated Financial
Statements.
|
|
2.
|
Summary
of Significant Accounting Policies
|
Cash
and Cash Equivalents
Cash and cash equivalents include all highly liquid investments
with maturity dates of less than three months when purchased.
Restricted
Cash
We had restricted cash of $25.5 million and
$12.9 million at January 3, 2009 and December 29,
2007, respectively. Restricted cash primarily includes amounts
held in escrow related to our interest rate swap (see
Note 8) and mortgage (see Note 9). Restricted
cash is included in Other current assets and
Other non-current assets on the accompanying
Consolidated Balance Sheets.
Concentrations
of Credit Risk
Our accounts receivable are principally from customers in the
building products industry located in the United States and
Canada. Concentration of credit risk with respect to accounts
receivable, however, is limited due to the large number of
customers comprising our customer base.
Allowance
for Doubtful Accounts and Related Reserves
We evaluate the collectibility of accounts receivable based on
numerous factors, including past transaction history with
customers and their creditworthiness. We maintain an allowance
for doubtful accounts for each aging category on our aged trial
balance based on our historical loss experience. This estimate
is periodically adjusted when we become aware of specific
customers inability to meet their financial obligations
(e.g., bankruptcy filing or other evidence of liquidity
problems). As we determine that specific balances will be
ultimately uncollectible, we remove them from our aged trial
balance. Additionally, we maintain reserves for cash discounts
that we expect customers to earn as well as expected returns. At
January 3, 2009 and December 29, 2007, these reserves
totaled $10.1 million and $10.5 million, respectively.
Adjustments to earnings resulting from revisions to estimates on
discounts and uncollectible accounts have been insignificant for
fiscal 2008, fiscal 2007 and fiscal 2006.
48
BLUELINX
HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Revenue
Recognition
We recognize revenue when the following criteria are met:
persuasive evidence of an agreement exists, delivery has
occurred or services have been rendered, our price to the buyer
is fixed and determinable and collectibility is reasonably
assured. Delivery is not considered to have occurred until the
customer takes title and assumes the risks and rewards of
ownership. The timing of revenue recognition is largely
dependent on shipping terms. Revenue is recorded at the time of
shipment for terms designated as FOB (free on board) shipping
point. For sales transactions designated FOB destination,
revenue is recorded when the product is delivered to the
customers delivery site.
All product sales are recorded at gross in accordance with the
guidance outlined by Emerging Issues Task Force
99-19,
Reporting Revenue Gross as a Principal versus Net as an
Agent
(EITF 99-19)
and in accordance with standard industry practice. The key
indicators used to determine this are as follows:
|
|
|
|
|
We are the primary obligor responsible for fulfillment;
|
|
|
|
We hold title to all reload inventory and are responsible for
all product returns;
|
|
|
|
We control the selling price for all channels;
|
|
|
|
We select the supplier; and
|
|
|
|
We bear all credit risk.
|
We also provide delivery and product management services for
which the associated revenues are recognized upon completion of
services. These revenues represent less than 1% of our net sales.
All revenues recognized are net of trade allowances, cash
discounts and sales returns. Cash discounts and sales returns
are estimated using historical experience. Trade allowances are
based on estimated obligations and our historical experience.
Shipping
and Handling
Amounts billed to customers in sales transactions related to
shipping and handling are classified as revenue. Shipping and
handling costs included in Selling, general, and
administrative expenses were $119 million,
$137 million, and $143 million for fiscal 2008, fiscal
2007, and fiscal 2006, respectively.
Advertising
Costs
Advertising costs are expensed as incurred. Advertising expenses
of $2.5 million, $6.5 million, and $10.7 million
were included in Selling, general and administrative
expenses for fiscal 2008, fiscal 2007 and fiscal 2006,
respectively.
Earnings
per Common Share
Basic and diluted earnings per share are computed by dividing
net income by the weighted average number of common shares
outstanding for the period.
Except when the effect would be anti-dilutive, the diluted
earnings per share calculation includes the dilutive effect of
the assumed exercise of stock options and restricted stock using
the treasury stock method.
We have excluded stock options to purchase
1,038,515 shares, 1,490,295 shares and
1,374,942 shares for fiscal 2008, fiscal 2007 and fiscal
2006, respectively, because they were anti-dilutive. In
addition, we have excluded 1,493,594, 555,559 and 147,412
restricted stock and performance share awards for fiscal 2008,
fiscal 2007 and fiscal 2006, respectively, because they were
anti-dilutive.
49
BLUELINX
HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Common
Stock Dividends
In the past we have paid dividends on our common stock at the
quarterly rate of $0.125 per share. However, on December 5,
2007, our Board of Directors suspended the payment of dividends
on our common stock for an indefinite period of time. Resumption
of the payment of dividends will depend on, among other things,
business conditions in the housing industry, our results of
operations, cash requirements, financial condition, contractual
restrictions, provisions of applicable law and other factors
that our Board of Directors may deem relevant. Accordingly, we
may not be able to resume the payment of dividends at the same
quarterly rate in the future, if at all.
Inventory
Valuation
Inventories are carried at the lower of cost or market. The cost
of all inventories is determined by the moving average cost
method. We evaluate our inventory value at the end of each
quarter to ensure that first quality, actively moving inventory,
when viewed by category, is carried at the lower of cost or
market. At January 3, 2009 and December 29, 2007, the
lower of cost or market reserve totaled $3.4 million and
$0.02 million, respectively.
Additionally, we maintain a reserve for the estimated value
impairment associated with damaged, excess and obsolete
inventory. The damaged, excess and obsolete reserve generally
includes inventory that has turn days in excess of
270 days, excluding new items during their product launch,
or discontinued items. At January 3, 2009 and
December 29, 2007, our damaged, excess and obsolete
inventory reserves totaled $4.0 million and
$4.4 million, respectively. Adjustments to earnings
resulting from revisions to damaged, excess and obsolete
estimates have been insignificant for fiscal 2008, fiscal 2007
and fiscal 2006.
Property
and Equipment
Property and equipment are recorded at cost. Lease obligations
for which we assume or retain substantially all the property
rights and risks of ownership are capitalized. Replacements of
major units of property are capitalized and the replaced
properties are retired. Replacements of minor components of
property and repair and maintenance costs are charged to expense
as incurred.
Depreciation is computed using the straight-line method over the
estimated useful lives of the related assets. Useful lives are 2
to 18 years for land improvements, 5 to 40 years for
buildings, and 3 to 7 years for machinery and equipment,
which includes mobile equipment. Upon retirement or disposition
of assets, cost and accumulated depreciation are removed from
the related accounts and any gain or loss is included in income.
Depreciation expense totaled $18.0 million for fiscal 2008
and fiscal 2007 and $17.0 million for fiscal 2006.
During fiscal 2008, we classified, as held for sale, certain
real properties where the Company had ceased operations. As of
January 3, 2009, we had $3.0 million of fixed assets
held for sale for which fair market value exceeds net book value.
During fiscal 2008 and fiscal 2007, we capitalized
$1.9 million and $3.9 million of costs, respectively,
for internally developed software in accordance with Statement
of Position
98-1,
Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use
(SOP 98-1).
As of January 3, 2009 and December 29, 2007, the total
amount capitalized for internally developed software was
$5.8 million and $3.9 million, respectively.
Accumulated depreciation related to internally developed
software totaled $1.0 million at January 3, 2009. For
fiscal 2007, there was no depreciation recorded for these assets
as these assets were not placed in service.
50
BLUELINX
HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Impairment
of Long-Lived Assets
Under Statement of Financial Accounting Standards No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets (SFAS 144), long-lived assets,
including property and equipment and intangible assets with
definite useful lives, are reviewed for possible impairment
whenever events or circumstances indicate that the carrying
amount of an asset may not be recoverable. Determining whether
an impairment has occurred typically requires various estimates
and assumptions, including determining which cash flows are
directly related to the potentially impaired asset, the useful
life over which cash flows will occur, their amount and the
assets residual value, if any. In turn, measurement of an
impairment loss requires a determination of fair value, which is
based on the best information available. We use internal cash
flow estimates, quoted market prices when available and
independent appraisals as appropriate to determine fair value.
We derive the required cash flow estimates from our historical
experience and our internal business plans and apply an
appropriate discount rate. Our fair value estimate for fixed
assets and intangible long-lived assets are considered to be
level 3 measurements in the fair value hierarchy as defined
in Note 10. If these projected cash flows are less than the
carrying amount, an impairment loss is recognized based on the
fair value of the asset less any costs of disposition. Our
judgment regarding the existence of impairment indicators is
based on market and operational performance. During fiscal 2008,
we recorded a non-cash impairment charge of $0.4 million
($0.2 million after tax) to reduce the carrying value of
certain long-lived assets to fair value. These costs were
included in Selling, general and administrative
expense in the Consolidated Statement of Operations. There were
no adjustments to earnings resulting from the impairment of
long-lived assets for fiscal 2007 or fiscal 2006.
Intangible
Assets with Definite Useful Lives
Our intangible assets with definite useful lives are comprised
of customer relationships, internally developed software, supply
agreements, trade names and non-compete agreements. These assets
each totaled $8.2 million, $4.1 million,
$5.3 million, $0.3 million and $0.2 million,
respectively. These assets estimated useful lives are
6.0 years, 3.0 years, 6.0 years, 1.0 year
and 3.3 years, respectively. Amortization expense for
intangible assets was $2.5 million, $3.0 million and
$3.7 million for fiscal 2008, fiscal 2007 and fiscal 2006,
respectively. Accumulated amortization totaled
$14.6 million at January 3, 2009, which included
accumulated amortization for customer relationships, internally
developed software, supply agreements, trade names, and
non-compete agreements of $6.2 million, $4.1 million,
$4.1 million, $0.3 million, and $0.2 million,
respectively. At December 2007, accumulated amortization totaled
$12.4 million, which included accumulated amortization for
customer relationships, internally developed software, supply
agreements, trade names and non-compete agreements of
$4.7 million, $4.1 million, $3.2 million,
$0.3 million, and $0.1 million, respectively.
Estimated amortization expense for each of the five succeeding
years is as follows:
|
|
|
|
|
|
|
(In thousands)
|
|
|
For fiscal 2009
|
|
$
|
2,291
|
|
For fiscal 2010
|
|
$
|
920
|
|
For fiscal 2011
|
|
$
|
204
|
|
For fiscal 2012
|
|
$
|
119
|
|
For fiscal 2013
|
|
$
|
|
|
Intangible
Assets with Indefinite Useful Lives
The acquisition of Austin Hardwoods resulted in goodwill in the
amount of $0.7 million. Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible
Assets (SFAS 142) requires that goodwill
and indefinite-lived intangible assets are tested for impairment
at the reporting unit level annually, or
51
BLUELINX
HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
more often if an event or circumstance indicates that an
impairment loss may have been incurred. To test for impairment,
the two-step impairment test shall be used to identify potential
goodwill impairment and measure the amount of a goodwill
impairment loss to be recognized, if any. The first step of the
goodwill impairment test, used to identify potential impairment,
compares the fair value of a reporting unit with its carrying
amount, including goodwill. If the fair value of a reporting
unit exceeds its carrying amount, goodwill of the reporting unit
is considered not impaired, thus the second step of the
impairment test is unnecessary. If the carrying amount of a
reporting unit exceeds its fair value, the second step of the
impairment test shall be performed to measure the amount of
impairment loss, if any. This second test compares the implied
fair value of reporting unit goodwill with the carrying amount
of that goodwill. The implied fair value of goodwill shall be
determined in the same manner as the amount of goodwill
recognized in a business combination is determined. The excess
of the fair value of a reporting unit over the amounts assigned
to its assets and liabilities is the implied fair value of
goodwill.
In accordance with SFAS 142, we conducted impairment
testing on our goodwill as of our November month-end testing
date. We used the discounted estimated future cash flows
methodology to determine the fair value of Austin Hardwoods
(i.e. the reporting unit). Assumptions critical to our fair
value estimates were: (i) the present value factors used in
determining the fair value of the reporting unit and
(ii) projected sales growth rates used in the reporting
unit model. These and other assumptions are impacted by economic
conditions and expectations of management. Our fair value
estimate for long-lived assets are considered to be a
level 3 measurement in the fair value hierarchy as defined
in Note 10. We estimated that the implied value of our
goodwill is less than the carrying value by approximately
$0.7 million, which we have recognized as an impairment of
goodwill included in Selling, general, and
administrative expense in the accompanying Consolidated
Statement of Operations for fiscal year ended January 3,
2009.
Restructuring
Charges
During fiscal 2008 and fiscal 2007, we vacated leased office
space. We accounted for these transactions in accordance with
Statement of Financial Accounting Standards No. 146,
Accounting for Costs Associated with Exit or Disposal
Activities (SFAS 146), which
requires that a liability be recognized for a cost associated
with an exit or disposal activity at fair value in the period in
which it is incurred or when the entity ceases using the right
conveyed by a contract (i.e., the right to use a leased
property). Our restructuring charges included accruals for
estimated losses on facility costs based on our contractual
obligations net of estimated sublease income based on current
comparable market rates for leases. We will reassess this
liability periodically based on market conditions. Revisions to
our estimates of this liability could materially impact our
operating results and financial position in future periods if
anticipated events and key assumptions, such as the timing and
amounts of sublease rental income, either do not materialize or
change. During fiscal 2008, we recorded $4.4 million of
expense related to exited facilities of which $2.4 million
was related to a change in estimate associated with one of our
exited facilities. These costs were included in Selling,
general and administrative expense in the Consolidated
Statement of Operations and in Other current
liabilities, and in Other non-current
liabilities on the Consolidated Balance Sheet at
January 3, 2009 and December 29, 2007.
Additionally, during fiscal 2008 and fiscal 2007, we recorded
severance and outplacement costs totaling $5.2 million and
$5.6 million, respectively, based on the terms of our
existing severance plan. These charges were included in
Selling, general, and administrative expenses in the
Consolidated Statements of Operations and in Accrued
Compensation on the Consolidated Balance Sheets at
January 3, 2009 and December 29, 2007.
52
BLUELINX
HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table displays the restructuring activity and
liability balances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exit
|
|
|
Severance
|
|
|
|
|
|
|
Costs
|
|
|
Costs
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Balance at December 29, 2007
|
|
$
|
11,326
|
|
|
$
|
1,408
|
|
|
$
|
12,734
|
|
Charges
|
|
|
4,441
|
|
|
|
5,235
|
|
|
|
9,676
|
|
Payments
|
|
|
(2,438
|
)
|
|
|
(6,131
|
)
|
|
|
(8,569
|
)
|
Accretion of liability
|
|
|
804
|
|
|
|
|
|
|
|
804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 3, 2009
|
|
$
|
14,133
|
|
|
$
|
512
|
|
|
$
|
14,645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensated
Absences
We accrue for the costs of compensated absences to the extent
that the employees right to receive payment relates to
service already rendered, the obligation vests or accumulates,
payment is probable and the amount can be reasonably estimated.
Stock-Based
Compensation
Under Statement of Financial Accounting Standards No. 123R,
Shared-Based Payment (SFAS 123R),
we recognize compensation expense equal to the grant-date fair
value for all share-based payment awards that are expected to
vest. This expense is recorded on a straight-line basis over the
requisite service period of the entire award, unless the awards
are subject to market or performance conditions, in which case
we recognize compensation expense over the requisite service
period of each separate vesting tranche. All compensation
expense related to our share-based payment awards is recorded in
Selling, general, and administrative expense in the
Consolidated Statement of Operations.
Compensation expense arising from stock-based awards granted to
employees and non-employee directors is recognized as expense
using the straight-line method over the vesting period. As of
January 3, 2009, there was $1.7 million,
$3.7 million, $0.1 million and $0.7 million of
total unrecognized compensation expense related to stock
options, restricted stock, restricted stock units and
performance shares, respectively. The unrecognized compensation
expense for stock options, restricted stock, restricted stock
units and performance shares is expected to be recognized over a
period of 2.1 years, 2.0 years, 1.0 years and
2.0 years, respectively. As of December 29, 2007 there
was $3.2 million, $2.1 million $0.4 million and
$0.4 million of total unrecognized compensation expense
related to stock options, restricted stock, restricted stock
units and performance shares, respectively. The unrecognized
compensation expense for stock options, restricted stock,
restricted stock units and performance shares was expected to be
recognized over a period of 3.0 years, 2.7 years,
2.3 years and 2.0 years, respectively.
For fiscal 2008, fiscal 2007 and fiscal 2006, our total
stock-based compensation expense was $2.6 million,
$3.6 million, and $3.1 million, respectively. We also
recognized related income tax benefits of $0.7 million,
$1.4 million and $1.2 million, respectively.
Shareholders
Equity
During the fourth quarter of fiscal 2008, our Board of Directors
authorized the Company to repurchase up to $10.0 million of
our common stock over the next two years. Under the terms of the
repurchase program, we may repurchase shares in open market
purchases or through privately negotiated transactions. We will
use cash on hand to fund repurchases of our common stock.
53
BLUELINX
HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Income
Taxes
Deferred income taxes are provided using the liability method
under the provisions of Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes
(SFAS 109). Accordingly, deferred income
taxes are recognized for differences between the income tax and
financial reporting bases of our assets and liabilities based on
enacted tax laws and tax rates applicable to the periods in
which the differences are expected to affect taxable income.
In evaluating our ability to recover our deferred income tax
assets, we consider all available positive and negative
evidence, including our past operating results, our ability to
carryback losses against prior taxable income, the existence of
cumulative losses in the most recent years, tax planning
strategies, our forecast of future taxable income and the
existence of an excess of appreciated assets over the tax basis
of our net assets in amounts sufficient to realize our deferred
tax assets. In estimating future taxable income, we develop
assumptions including the amount of future state and federal
pretax operating and non-operating income, the reversal of
temporary differences and the implementation of feasible and
prudent tax planning strategies. These assumptions require
significant judgment about the forecasts of future taxable
income. During fiscal 2008, we recorded a $1.4 million
valuation allowance primarily related to state deferred tax
assets, of which $1.2 million reduced the benefit from
income taxes.
We have recorded deferred income tax assets of
$36.8 million and $21.9 million at January 3,
2009 and December 29, 2007, reflecting the benefit of
$94.6 million and $56.0 million of deductible
temporary differences, respectively. Realization is dependent on
generating sufficient taxable income in future years.
In fiscal 2007, we adopted the provisions of FASB Interpretation
No. 48 (FIN 48), Accounting for
Uncertainty in Income Taxes, which prescribes a
comprehensive model for how a company should recognize, measure,
present and disclose in its financial statements uncertain tax
positions that the company has taken or expects to take on a tax
return (including a discussion of whether to file or not to file
a return in a particular jurisdiction). The cumulative effect of
applying FIN 48 was reported as an adjustment to the
opening balance of retained earnings for fiscal 2007. Adoption
of FIN 48 on December 31, 2006, the first day of our
2007 fiscal year, did not have a material effect on our
consolidated financial position or results of operations.
Foreign
Currency Translation
The functional currency for our Canadian operations is the
Canadian dollar. The translation of the applicable currencies
into United States dollars is performed for balance sheet
accounts using current exchange rates in effect at the balance
sheet date and for revenue and expense accounts using a weighted
average exchange rate during the period. Any related translation
adjustments are recorded directly in shareholders equity.
Foreign currency transaction gains and losses are reflected in
the accompanying financial statements. Accumulated other
comprehensive (loss) income at January 3, 2009 and
December 29, 2007 included the gain from foreign currency
translation (net of tax) of $0.3 million and
$2.9 million, respectively.
Derivatives
We are exposed to risks such as changes in interest rates,
commodity prices and foreign currency exchange rates. We employ
a variety of practices to manage these risks, including
operating and financing activities and, where deemed
appropriate, the use of derivative instruments. Derivative
instruments are used only for risk management purposes and not
for speculation or trading, and are not used to address risks
related to foreign currency exchange rates.
In accordance with SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, as amended,
we record derivative instruments as assets or liabilities on the
balance sheet at fair value.
54
BLUELINX
HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
On June 12, 2006, we entered into an interest rate swap
agreement with Goldman Sachs Capital Markets, to hedge against
interest rate risks related to our variable rate revolving
credit facility. The interest rate swap has a notional amount of
$150 million and the terms call for us to receive interest
monthly at a variable rate equal to
30-day LIBOR
and to pay interest monthly at a fixed rate of 5.4%. This
interest rate swap is designated as a cash flow hedge.
Through January 3, 2009, the hedge was highly effective in
offsetting changes in expected cash flows as the critical terms
of the interest rate swap generally match the critical terms of
the variable rate revolving credit facility. Fluctuations in the
fair value of the ineffective portion, if any, of the cash flow
hedge are reflected in current period earnings. These amounts
were immaterial during fiscal 2008, fiscal 2007 and fiscal 2006.
At January 3, 2009 and December 29, 2007, the fair
value of the interest rate swap was a liability of
$13.2 million and $7.1 million, respectively. These
balances were included in Other current liabilities
and Other long-term liabilities on the Consolidated
Balance Sheet. At January 3, 2009, we had approximately
$13.2 million of cash collateral held related to the
interest rate swap liability. Accumulated other comprehensive
(loss) income at January 3, 2009 and December 29, 2007
included the net loss on the cash flow hedge (net of tax) of
$8.0 million and $4.3 million, respectively, which
reflects the cumulative amount of comprehensive loss recognized
in connection with the change in fair value of the swap.
During January 2009, we reduced our borrowings under the
revolving credit facility by $60.0 million at which point
the hedge became ineffective in offsetting changes in expected
cash flows during the remaining term of the interest rate swap.
We used cash on hand to pay down this portion of our revolving
credit debt. The repayment of borrowings under the revolving
credit facility resulted in a non-cash charge of approximately
$5.9 million recorded in interest expense at the payment
date. The remaining $8.8 million of other comprehensive
loss will be amortized over the remaining 28 month term of
the interest rate swap and recorded as interest expense.
Approximately $3.9 million will be amortized over the next
12 months and recorded as interest expense. All future
changes in the fair value of the interest rate swap during the
remaining term of the interest rate swap will be recorded as
interest expense. Any further reductions in borrowings under our
revolving credit facility will result in a pro-rata reduction in
accumulated other comprehensive loss at the payment date with a
corresponding charge recorded to interest expense.
Financial
Instruments
Carrying amounts for our financial instruments are not
significantly different from their fair value, with the
exception of our mortgage. At January 3, 2009, the carrying
value and fair value of our mortgage was $289 million and
$263 million, respectively.
BlueLinx
Holdings Inc.
In BlueLinx Holdings Inc.s financial statements in
Note 15, BlueLinx Holdings Inc.s investment in
subsidiaries is stated at cost plus equity in undistributed
earnings of subsidiaries since date of acquisition. BlueLinx
Holdings Inc.s share of net income of its unconsolidated
subsidiaries is included in consolidated income using the equity
method. BlueLinx Holdings Inc.s financial statements
should be read in conjunction with our Consolidated Financial
Statements.
Use of
Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make certain estimates and assumptions.
These estimates and assumptions affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at
55
BLUELINX
HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the date of the financial statements, as well as reported
amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates and such
differences could be material.
New
Accounting Standards
In December 2008, the FASB issued FASB Staff Position
No. 132(R)-1, Employers Disclosures about
Pensions and Other Postretirement Benefits
(FSP 132R-1). FSP 132R-1 requires enhanced
disclosures about the plan assets of our defined benefit pension
and other postretirement plans. The enhanced disclosures
required by this FSP are intended to provide users of financial
statements with a greater understanding of: (1) how
investment allocation decisions are made, including the factors
that are pertinent to an understanding of investment policies
and strategies; (2) the major categories of plan assets;
(3) the inputs and valuation techniques used to measure the
fair value of plan assets; (4) the effect of fair value
measurements using significant unobservable inputs
(Level 3) on changes in plan assets for the period;
and (5) significant concentrations of risk within plan
assets. FSP 132R-1 is effective for us for the year ending
January 2, 2010.
In June 2008, the FASB issued FSP No. Emerging Issues Task
Force (EITF)
03-6-1,
Determining Whether Instruments Granted in Share-Based
Payment Transactions are Participating Securities
(FSP 03-6-1).
FSP 03-6-1
clarifies that unvested share-based payment awards that contain
non-forfeitable rights to dividends or dividend equivalents
(whether paid or unpaid) are participating securities and are to
be included in the computation of earnings per share under the
two-class method described in Statement of Financial Accounting
Standards No. 128, Earnings Per Share. This FSP
is effective for us on January 4, 2009 and requires all
presented prior-period earnings per share data to be adjusted
retrospectively. We are still in the process of evaluating the
impact
FSP 03-6-1
will have on our Consolidated Financial Statements. For
additional information about our share-based payment awards,
refer to Note 5 of the Notes to Consolidated Financial
Statements in our
Form 10-K.
In May 2008, the FASB issued Statement of Financial Accounting
Standards No. 162, The Hierarchy of Generally
Accepted Accounting Principles
(SFAS 162). SFAS 162 identifies the
sources of accounting principles and the framework for selecting
the principles to be used in the preparation of financial
statements that are presented in conformity with generally
accepted accounting principles in the United States. This
Statement is effective 60 days following the SECs
approval of the Public Company Accounting Oversight Board
amendments to AU Section 411, The Meaning of Present
Fairly in Conformity with Generally Accepted Accounting
Principles. We do not expect SFAS 162 to have a
material impact on our Consolidated Financial Statements.
In April 2008, the FASB issued FASB Staff Position
No. 142-3,
Determination of the Useful Life of Intangible
Assets
(FSP 142-3).
FSP 142-3
amends the factors to be considered in developing renewal or
extension assumptions used to determine the useful life of
intangible assets under Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible
Assets. Its intent is to improve the consistency between
the useful life of an intangible asset and the period of
expected cash flows used to measure its fair value.
FSP 142-3
is effective for us on January 4, 2009. We do not expect it
to have a material impact on our Consolidated Financial
Statements.
In March 2008, the FASB issued Statement of Financial Accounting
Standards No. 161, Disclosures about Derivative
Instruments and Hedging Activities An Amendment of
SFAS 133 (SFAS 161).
SFAS No. 161 seeks to improve financial reporting for
derivative instruments and hedging activities by requiring
enhanced disclosures regarding the impact on financial position,
financial performance, and cash flows. To achieve this increased
transparency, SFAS 161 requires (1) the disclosure of
the fair value of derivative instruments and gains and losses in
a tabular format; (2) the disclosure of derivative features
that are credit risk-related; and (3) cross-referencing
within the footnotes. SFAS 161 is effective for us, on a
prospective basis, on January 4, 2009. We are still in the
process of evaluating the impact of SFAS 161, but do not
expect it to have a material impact on our Consolidated
Financial Statements.
56
BLUELINX
HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In December 2007, the FASB issued Statement of Financial
Accounting Standards No. 141 (revised 2007) Business
Combinations (SFAS 141R). SFAS 141R
establishes principles and requirements for how the acquirer of
a business recognizes and measures in its financial statements
the identifiable assets acquired, the liabilities assumed, and
any non-controlling interest in the acquiree. SFAS 141R
also provides guidance for recognizing and measuring the
goodwill acquired in the business combination and determines
what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the
business combination. SFAS 141R is effective for us, on a
prospective basis, on January 4, 2009. We expect
SFAS 141R will have an impact on our accounting for future
business combinations once adopted, but the effect is dependent
upon the acquisitions that are made in the future.
In June 2007, the EITF reached a consensus on Emerging Issues
Task Forces Issue
No. 06-11,
Accounting for Income Tax Benefits of Dividends on
Share-Based Payment Awards
(EITF 06-11).
EITF 06-11
requires companies to recognize a realized income tax benefit
associated with dividends or dividend equivalents paid on
non-vested equity-classified employee share-based payment awards
that are charged to retained earnings as an increase to
additional paid-in capital.
EITF 06-11
was effective for us on December 30, 2007. The adoption of
EITF 06-11
did not have a material impact on our Consolidated Financial
Statements.
In February, 2007, the FASB issued Statement of Financial
Accounting Standards No. 159 The Fair Value Option
for Financial Assets and Financial Liabilities
(SFAS 159). SFAS 159 permits entities to
choose to measure many financial assets and financial
liabilities at fair value. Unrealized gains and losses on items
for which the fair value option has been elected are reported in
earnings. SFAS 159 was effective for us on
December 30, 2007. We have elected to not adopt the fair
value option in measuring certain financial assets and
liabilities.
In September 2006, the FASB issued Statement of Financial
Accounting Standards No. 157, Fair Value
Measurements (SFAS 157), which defines
fair value, establishes a framework for measuring fair value
under GAAP, and expands disclosures about fair value
measurements. SFAS 157 applies to other accounting
pronouncements that require or permit fair value measurements.
The new guidance was effective for us on December 30, 2007,
and for interim periods within those fiscal years. In February
2008, FASB Staff Position
No. 157-1
Application of FASB Statement No. 157 to FASB
Statement No. 13 and Other Accounting Pronouncements That
Address Fair Value Measurements for Purposes of Lease
Classification or Measurement under Statement 13
(FSP 157-1)
was issued.
FSP 157-1
removed leasing transactions accounted for under Statement 13
and related guidance from the scope of SFAS 157. FASB Staff
Position No
157-2
Partial Deferral of the Effective Date of Statement
157
(FSP 157-2)
deferred the effective date of SFAS 157 for all
nonfinancial assets and nonfinancial liabilities to fiscal years
beginning after November 15, 2008. On October 10,
2008, the FASB issued FASB Staff Position
No. 157-3,
Determining the Fair Value of a Financial Asset When the
Market for That Asset Is Not Active
(FSP 157-3).
FSP 157-3
clarifies the application of SFAS 157 in a market that is
not active and provides an example to illustrate key
considerations in determining the fair value of a financial
asset when the market for that financial asset is not active.
FSP 157-3
was effective immediately upon issuance, and includes prior
periods for which financial statements have not been issued. We
applied the guidance contained in
FSP 157-3
in determining fair values beginning on September 30, 2008,
although it did not have a material impact on our Consolidated
Financial Statements.
SFAS 157, defines fair value as the price that would be
received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the
measurement date (exit price). SFAS 157 classifies inputs
used to measure fair value into the following hierarchy:
|
|
|
Level 1
|
|
Unadjusted quoted prices in active markets for identical assets
or liabilities.
|
|
|
|
Level 2
|
|
Unadjusted quoted prices in active markets for similar assets or
liabilities, or
|
|
|
|
|
|
Unadjusted quoted prices for identical or similar assets or
liabilities in markets that are not active, or
|
57
BLUELINX
HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
Inputs other than quoted prices that are observable for the
asset or liability.
|
|
|
|
Level 3
|
|
Unobservable inputs for the asset or liability.
|
We are exposed to market risks from changes in interest rates,
which may affect our operating results and financial position.
When deemed appropriate, we minimize our risks from interest
rate fluctuations through the use of an interest rate swap. This
derivative financial instrument is used to manage risk and is
not used for trading or speculative purposes. The swap is valued
using a valuation model that has inputs other than quoted market
prices that are both observable and unobservable.
We endeavor to utilize the best available information in
measuring the fair value of the interest rate swap. The interest
rate swap is classified in its entirety based on the lowest
level of input that is significant to the fair value
measurement. To determine fair value of the interest rate swap
we used the discounted estimated future cash flows methodology.
Assumptions critical to our fair value in the period were: (i.)
the present value factors used in determining fair value (ii.)
projected LIBOR, and (iii.) the risk of counterparty
non-performance risk. These and other assumptions are impacted
by economic conditions and expectations of management. We have
determined that the fair value of our interest rate swap is a
level 3 measurement in the fair value hierarchy. The
level 3 measurement is the risk of counterparty
non-performance on the interest rate swap liability that is not
secured by cash collateral. The fair value of the interest rate
swap was a liability of $13.2 million and $7.1 million
at January 3, 2009 and December 29, 2007, respectively.
The implementation of SFAS 157 for financial assets and
financial liabilities, effective December 30, 2007, did not
have a material impact on our consolidated financial position
and results of operations. We have elected the provisions of
FSP 157-2;
however, we do not expect the implementation of SFAS 157
for non-financial assets and non-financial liabilities to have a
material impact on our consolidated financial position and
results of operations.
Our (benefit from) provision for income taxes consists of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
Fiscal Year
|
|
|
Fiscal Year
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
January 3,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2009
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Federal income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
(12,736
|
)
|
|
$
|
(7,420
|
)
|
|
$
|
11,902
|
|
Deferred
|
|
|
(2,149
|
)
|
|
|
(7,627
|
)
|
|
|
(3,060
|
)
|
State income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
(973
|
)
|
|
|
(1,106
|
)
|
|
|
1,814
|
|
Deferred
|
|
|
(786
|
)
|
|
|
(2,012
|
)
|
|
|
(758
|
)
|
Foreign income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
210
|
|
|
|
975
|
|
|
|
333
|
|
Deferred
|
|
|
|
|
|
|
113
|
|
|
|
118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Benefit from) provision for income taxes
|
|
$
|
(16,434
|
)
|
|
$
|
(17,077
|
)
|
|
$
|
10,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58
BLUELINX
HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The federal statutory income tax rate was 35%. Our (benefit
from) provision for income taxes is reconciled to the federal
statutory amount as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
Fiscal Year
|
|
|
Fiscal Year
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
January 3,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2009
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
(Benefit from) provision for income taxes computed at the
federal statutory tax rate
|
|
$
|
(16,893
|
)
|
|
$
|
(15,758
|
)
|
|
$
|
9,163
|
|
State income taxes, net of federal benefit
|
|
|
(1,706
|
)
|
|
|
(1,579
|
)
|
|
|
898
|
|
Valuation allowance
|
|
|
1,179
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
986
|
|
|
|
260
|
|
|
|
288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Benefit from) provision for income taxes
|
|
$
|
(16,434
|
)
|
|
$
|
(17,077
|
)
|
|
$
|
10,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our income before income taxes for our Canadian operations was
$0.7 million, $2.5 million and $2.9 million for
fiscal 2008, fiscal 2007 and fiscal 2006, respectively.
Approximately $2.4 million and $10.2 million of tax
benefits were included in other comprehensive (loss) income for
fiscal 2008 relating to our interest rate swap (see
note 8) and our pension plan (see note 6),
respectively. Approximately $4.3 and $6.8 of tax benefits were
included in other comprehensive income for fiscal 2007 relating
to our interest rate swap (see note 8) and our pension plan
(see note 6), respectively. Approximately $1.0 million
of tax benefit and $0.6 million of tax expense were included in
other comprehensive income for fiscal 2006 relating to our
interest rate swap (see note 8) and our pension plan (see
note 6), respectively.
The components of our net deferred income tax assets
(liabilities) are as follows:
|
|
|
|
|
|
|
|
|
|
|
January 3,
|
|
|
December 29,
|
|
|
|
2009
|
|
|
2007
|
|
|
|
(In thousands)
|
|
Deferred income tax assets:
|
|
|
|
|
|
|
|
|
Inventory reserves
|
|
$
|
4,484
|
|
|
$
|
4,301
|
|
Compensation-related accruals
|
|
|
4,927
|
|
|
|
5,370
|
|
Accruals and reserves
|
|
|
813
|
|
|
|
443
|
|
Pension
|
|
|
6,616
|
|
|
|
|
|
Accounts receivable
|
|
|
3,498
|
|
|
|
3,489
|
|
Restructuring costs
|
|
|
5,506
|
|
|
|
4,417
|
|
Derivatives
|
|
|
5,118
|
|
|
|
2,743
|
|
Benefit from NOL carryovers(1)
|
|
|
5,355
|
|
|
|
648
|
|
Other
|
|
|
525
|
|
|
|
520
|
|
|
|
|
|
|
|
|
|
|
Total gross deferred income tax assets
|
|
|
36,842
|
|
|
|
21,931
|
|
Less: Valuation allowances
|
|
|
(1,362
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net deferred income tax assets
|
|
$
|
35,480
|
|
|
$
|
21,931
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax liabilities:
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
|
(1,006
|
)
|
|
|
(1,852
|
)
|
Property and equipment
|
|
|
(3,374
|
)
|
|
|
(3,594
|
)
|
Pension
|
|
|
|
|
|
|
(721
|
)
|
Other
|
|
|
(1,764
|
)
|
|
|
(937
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred income tax liabilities
|
|
|
(6,144
|
)
|
|
|
(7,104
|
)
|
|
|
|
|
|
|
|
|
|
Deferred income tax assets, net
|
|
$
|
29,336
|
|
|
$
|
14,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Our NOL carryovers will expire over 4 to 20 years. |
59
BLUELINX
HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Deferred income tax assets and income tax benefits are provided
for temporary differences between amounts recorded for financial
reporting and income tax purposes. If, for some reason, the
combination of future years income (or loss) combined with the
reversal of temporary differences results in a loss, such losses
can be carried back to prior years or carried forward to future
years to recover the deferred tax assets. In accordance with
SFAS No. 109, we evaluate our deferred tax assets
quarterly to determine if valuation allowances are required.
SFAS 109 requires that companies assess whether valuation
allowances should be established based on the consideration of
all available evidence using a more likely than not
standard.
In evaluating our ability to recover our deferred income tax
assets, we consider all available positive and negative
evidence, including our past operating results, our ability to
carryback losses against prior taxable income, the existence of
cumulative losses in the most recent years, tax planning
strategies, our forecast of future taxable income and the
existence of an excess of appreciated assets over the tax basis
of our net assets in amounts sufficient to realize our deferred
tax assets. In estimating future taxable income, we develop
assumptions including the amount of future state and federal
pretax operating and non-operating income, the reversal of
temporary differences and the implementation of feasible and
prudent tax planning strategies. These assumptions require
significant judgment about the forecasts of future taxable
income. During fiscal 2008, we recorded a $1.4 million
valuation allowance primarily related to state deferred tax
assets, of which $1.2 million reduced the benefit from
income taxes.
We have recorded deferred income tax assets of
$36.8 million and $21.9 million at January 3,
2009 and December 29, 2007, reflecting the benefit of
$94.6 million and $56.0 million of deductible
temporary differences, respectively. Realization is dependent on
generating sufficient taxable income in future years.
On December 31, 2006, we adopted the provisions of
FIN 48. As a result of applying the provisions of
FIN 48, we recognized an increase of $0.1 million in
the liability for unrecognized tax benefits, which was accounted
for as a reduction to the December 31, 2006 balance of
retained earnings.
The following table summarizes the activity related to our
unrecognized tax benefits:
|
|
|
|
|
|
|
(In thousands)
|
|
|
Balance at December 31, 2006
|
|
$
|
111
|
|
Increases related to current year tax positions
|
|
|
57
|
|
Additions for tax positions in prior years
|
|
|
|
|
Reductions for tax positions in prior years
|
|
|
|
|
Settlements
|
|
|
(18
|
)
|
|
|
|
|
|
Balance at December 29, 2007
|
|
$
|
150
|
|
Increases related to current year tax positions
|
|
|
63
|
|
Additions for tax positions in prior years
|
|
|
48
|
|
Reductions for tax positions in prior years
|
|
|
|
|
Settlements
|
|
|
|
|
|
|
|
|
|
Balance at January 3, 2009
|
|
$
|
261
|
|
|
|
|
|
|
Included in the unrecognized tax benefits of $0.3 million
at January 3, 2009 was $0.2 million of tax benefits
that, if recognized, would reduce our annual effective tax rate.
We also accrued a nominal amount of interest and penalties
related to these unrecognized tax benefits during 2008, and this
amount is reported in the interest expense line of the financial
statements. We do not expect our unrecognized tax benefits to
change significantly over the next 12 months.
60
BLUELINX
HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
We file U.S., state, and foreign income tax returns in
jurisdictions with varying statutes of limitations. The 2004
through 2008 tax years generally remain subject to examination
by federal and most state and foreign tax authorities.
We have a diversified customer base concentrated in the building
products business. Credit risk is monitored and provisions for
expected losses are provided as determined necessary by
management. We generally do not require collateral.
The following reflects our activity in receivables related
reserve accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
|
|
|
|
|
|
Expense/
|
|
|
Write offs and
|
|
|
Ending
|
|
|
|
Balance
|
|
|
Acquisitions
|
|
|
(Income)
|
|
|
Other, Net
|
|
|
Balance
|
|
|
|
(In thousands)
|
|
|
Fiscal 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts and related reserves
|
|
$
|
10,945
|
|
|
$
|
45
|
|
|
$
|
556
|
|
|
$
|
(3,810
|
)
|
|
$
|
7,736
|
|
Fiscal 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts and related reserves
|
|
$
|
7,736
|
|
|
$
|
|
|
|
$
|
6,975
|
|
|
$
|
(4,175
|
)
|
|
$
|
10,536
|
|
Fiscal 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts and related reserves
|
|
$
|
10,536
|
|
|
$
|
|
|
|
$
|
5,764
|
|
|
$
|
(6,186
|
)
|
|
$
|
10,114
|
|
|
|
5.
|
Stock-Based
Compensation
|
We have two stock-based compensation plans covering officers,
directors and certain employees and consultants; the 2004 Long
Term Equity Incentive Plan (the 2004 Plan) and the
2006 Long Term Equity Incentive Plan (the 2006
Plan). The plans are designed to motivate and retain
individuals who are responsible for the attainment of our
primary long-term performance goals. The plans provide a means
whereby our employees and directors develop a sense of
proprietorship and personal involvement in our development and
financial success and encourage them to devote their best
efforts to our business. Although we do not have a formal policy
on the matter, we issue new shares of our common stock to
participants, upon the exercise of options, out of the total
amount of common shares authorized for issuance under the 2004
Plan and the 2006 Plan.
The 2004 Plan provides for the grant of nonqualified stock
options, incentive stock options and restricted shares of our
common stock to participants of the plan selected by our Board
of Directors or a committee of the Board who administer the 2004
Plan. We reserved 2,222,222 shares of our common stock for
issuance under the 2004 Plan. The terms and conditions of awards
under the 2004 Plan are determined by the administrator for each
grant.
Unless otherwise determined by the administrator or as set forth
in an award agreement, upon a Liquidity Event, all
unvested awards will become immediately exercisable and the
administrator may determine the treatment of all vested awards
at the time of the Liquidity Event. A Liquidity
Event is defined as (1) an event in which any person
who is not an affiliate of the Company becomes the beneficial
owner, directly or indirectly, of fifty percent or more of the
combined voting power of our then outstanding securities or
(2) the sale, transfer or other disposition of all or
substantially all of our business, whether by sale of assets,
merger or otherwise, to a person other than Cerberus.
On May 12, 2006 our shareholders approved the 2006 Plan.
The 2006 Plan permits the grant of nonqualified stock options,
incentive stock options, stock appreciation rights, restricted
stock, restricted stock
61
BLUELINX
HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
units, performance shares, performance units, cash-based awards,
and other stock-based awards. We reserved 1,700,000 shares
of our common stock for issuance under the 2006 Plan. The terms
and conditions of awards under the 2006 Plan are determined by
the administrator for each grant. Awards issued under the 2006
Plan are subject to accelerated vesting in the event of a change
in control as such event is defined in the 2006 Plan.
On January 8, 2008, the Compensation Committee granted
certain of our executive officers awards of restricted shares
and performance shares of our common stock. The restricted stock
awards vest on January 8, 2013, five years after the grant
date. However, the awards may vest earlier in their entirety (or
portion, as appropriate) upon the attainment of certain minimum
performance goals. The performance shares are contingent upon
the successful achievement of certain financial and strategic
goals approved by the Compensation Committee for the three year
period ending December 31, 2010. These awards were granted
pursuant to and are subject to the terms of the 2006 Plan.
On February 18, 2008, the Compensation Committee granted
certain equity awards to H. Douglas Goforth in connection with
his agreement to serve as our Chief Financial Officer. Pursuant
to the terms of the employment agreement with Mr. Goforth,
he received 60,000 restricted shares of our common stock on
February 18, 2008 as part of his incentive package to join
the Company. The shares were issued pursuant to the 2004 Plan.
The shares vest over a three-year period, but if
Mr. Goforths employment is terminated without cause
or if he resigns for good reason within the first three years,
these 60,000 shares will immediately vest. Additionally,
Mr. Goforth was issued 40,000 shares of restricted
stock and 42,000 performance shares subject to similar time and
performance based vesting criteria as was established by the
Committee for similar executive level grants issued to Company
executives on January 8, 2008 as described above.
On March 10, 2008, the Compensation Committee granted
certain equity awards to Howard S. Cohen in connection with his
agreement to serve as our Interim Chief Executive Officer.
Pursuant to the terms of his employment agreement,
Mr. Cohen received options to purchase 750,000 shares
of our common stock and a restricted stock award of 500,000
restricted shares of the Company. Mr. Cohen received an
additional 250,000 restricted shares of the Companys
common stock on May 21, 2008. All of the stock options and
restricted stock awards issued to Mr. Cohen will vest in
three equal annual installments beginning on March 10,
2009. The exercise price of the options is $4.66 per share based
upon the closing price of the Companys common stock on the
New York Stock Exchange on the date preceding the date of the
grant.
At our annual meeting of stockholders on May 21, 2008, our
stockholders approved an amendment to the 2006 Plan which
increases the maximum number of shares of common stock we may
issue under the 2006 Plan by 1,500,000 shares from
1,700,000 shares to 3,200,000 shares. The purpose of
this amendment was to assure that we can continue to grant
equity awards at levels determined appropriate by the Board.
On January 13, 2009, the Compensation Committee granted
651,150 restricted shares of our common stock to certain of our
officers.
Under SFAS 123R, we recognize compensation expense equal to
the grant-date fair value for all share-based payment awards
that are expected to vest. This expense is recorded on a
straight-line basis over the requisite service period of the
entire award, unless the awards are subject to market or
performance conditions, in which case we recognize compensation
expense over the requisite service period of each separate
vesting tranche. All compensation expense related to our
share-based payment awards is recorded in Selling, general
and administrative expense in the Consolidated Statement
of Operations.
Compensation expense arising from stock-based awards granted to
employees and non-employee directors is recognized as expense
using the straight-line method over the vesting period. As of
January 3, 2009, there was $1.7 million,
$3.7 million, $0.1 million and $0.7 million of
total unrecognized compensation expense related to stock
options, restricted stock, restricted stock units and
performance shares, respectively. The unrecognized compensation
expense for stock options, restricted stock, restricted stock
units and performance shares is expected to be recognized over a
period of 2.1 years, 2.0 years, 1.0 years and
2.0 years, respectively.
62
BLUELINX
HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As of December 29, 2007 there was $3.2 million,
$2.1 million $0.4 million and $0.4 million of
total unrecognized compensation expense related to stock
options, restricted stock, restricted stock units and
performance shares, respectively. The unrecognized compensation
expense for stock options, restricted stock, restricted stock
units and performance shares was expected to be recognized over
a period of 3.0 years, 2.7 years, 2.3 years and
2.0 years, respectively.
For fiscal 2008, fiscal 2007 and fiscal 2006, our total
stock-based compensation expense was $2.6 million,
$3.6 million, and $3.1 million, respectively. We also
recognized related income tax benefits of $0.7 million,
$1.4 million and $1.2 million, respectively.
The total fair value of the options vested in fiscal 2008,
fiscal 2007 and fiscal 2006 was $0.8 million,
$2.3 million and $2.0 million, respectively. For
restricted stock, the total fair value vested in fiscal 2008 was
$0.8 million. In fiscal 2007 and fiscal 2006, there were no
shares of restricted stock that vested.
Cash proceeds from the exercise of stock options totaled for
fiscal 2008, fiscal 2007, and fiscal 2006 totaled
$0.4 million, $0.5 million, and $1.9 million,
respectively. In addition, SFAS No. 123R requires us
to reflect the benefits of tax deductions in excess of
recognized compensation expense as both a financing cash inflow
and an operating cash outflow upon adoption. For fiscal 2008,
fiscal 2007, and fiscal 2006, we included $0.08 million,
$0.02 million, and $0.9 million, respectively, of
excess tax benefits in cash flows from financing activities
The following table depicts the weighted average assumptions
used in connection with the Black-Scholes option pricing model
to estimate the fair value of time-based options and
performance-based options granted during fiscal 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time-Based
|
|
|
Performance-Based
|
|
|
Performance-Based
|
|
|
|
Options(1)
|
|
|
Options(2)
|
|
|
Options(3)
|
|
|
Risk free interest rate
|
|
|
2.70
|
%
|
|
|
2.62
|
%
|
|
|
2.11
|
%
|
Expected dividend yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Expected life
|
|
|
6 years
|
|
|
|
4 years
|
|
|
|
1 year
|
|
Expected volatility
|
|
|
48
|
%
|
|
|
48
|
%
|
|
|
48
|
%
|
Weighted average fair value
|
|
$
|
2.27
|
|
|
$
|
0.67
|
|
|
$
|
1.31
|
|
|
|
|
(1) |
|
Exercise price equaled the market price at date of grant. |
|
(2) |
|
Exercise price exceeded the market price at date of grant. |
|
(3) |
|
Exercise price was less than the market price at date of grant
(the date the performance criteria were established is
considered the grant date for accounting purposes). |
Performance-based options include options for which the
financial target has been set by the Board of Directors, or a
committee thereof. On February 19, 2008, the compensation
committee set the financial target for 48,856 options subject to
vesting criteria in 2007.
63
BLUELINX
HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table depicts the weighted average assumptions
used in connection with the Black-Scholes option pricing model
to estimate the fair value of time-based options and
performance-based options granted during fiscal 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time-Based
|
|
|
Time-Based
|
|
|
Performance-Based
|
|
|
|
Options(1)
|
|
|
Options(2)
|
|
|
Options(3)
|
|
|
Risk free interest rate
|
|
|
4.78
|
%
|
|
|
4.81
|
%
|
|
|
5.09
|
%
|
Expected dividend yield
|
|
|
4.46
|
%
|
|
|
4.52
|
%
|
|
|
4.52
|
%
|
Expected life
|
|
|
7 years
|
|
|
|
5 years
|
|
|
|
1 year
|
|
Expected volatility
|
|
|
45
|
%
|
|
|
45
|
%
|
|
|
45
|
%
|
Weighted average fair value
|
|
$
|
3.77
|
|
|
$
|
2.83
|
|
|
$
|
6.97
|
|
|
|
|
(1) |
|
Exercise price equaled market price at date of grant. |
|
(2) |
|
Exercise price exceeded the market price at date of grant. |
|
(3) |
|
Exercise price was less than the market price at date of grant
(the date the performance criteria were established is
considered the grant date for accounting purposes). |
Performance-based options include options for which the
financial target has been set by the board of directors, or a
committee thereof. On February 14, 2007, the compensation
committee set the financial target for 60,375 options subject to
vesting criteria in 2007.
The following table depicts the weighted average assumptions
used in connection with the Black-Scholes option pricing model
to estimate the fair value of options granted during fiscal 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time-Based
|
|
|
Time-Based
|
|
|
Performance-Based
|
|
|
|
Options(1)
|
|
|
Options(2)
|
|
|
Options(3)
|
|
|
Risk free interest rate
|
|
|
4.73
|
%
|
|
|
4.36
|
%
|
|
|
4.60
|
%
|
Expected dividend yield
|
|
|
3.85
|
%
|
|
|
4.43
|
%
|
|
|
3.19
|
%
|
Expected life
|
|
|
7 years
|
|
|
|
7 years
|
|
|
|
1 year
|
|
Expected volatility
|
|
|
50
|
%
|
|
|
50
|
%
|
|
|
50
|
%
|
Weighted average fair value
|
|
$
|
5.12
|
|
|
$
|
3.69
|
|
|
$
|
11.48
|
|
|
|
|
(1) |
|
Exercise price equaled market price at date of grant. |
|
(2) |
|
Exercise price exceeded market price at date of grant. |
|
(3) |
|
Exercise price was less than the market price at date of grant
(the date the performance criteria were established is
considered the grant date for accounting purposes). |
Performance-based options include options for which the
financial target has been set by the board of directors, or a
committee thereof. On February 1, 2006, the compensation
committee set the financial target for 69,300 options subject to
vesting criteria in 2006.
In determining the expected life, we followed a simplified
method based on the vesting term and contractual term as
permitted under SEC Staff Accounting Bulletin No. 107.
The range of risk-free rates for fiscal 2008, fiscal 2007 and
fiscal 2006 was from 2.11% to 2.70%, 4.78% to 5.10% and 4.34% to
5.05%, respectively.
The expected volatility is based on the historical volatility of
our common stock.
The table below includes certain additional information related
to our outstanding employee stock options for the three years
ended January 3, 2009.
64
BLUELINX
HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
|
Shares
|
|
|
Price
|
|
|
Options outstanding at December 31, 2005
|
|
|
1,695,682
|
|
|
$
|
8.23
|
|
Options granted
|
|
|
672,242
|
|
|
$
|
12.19
|
|
Options exercised
|
|
|
(508,845
|
)
|
|
$
|
3.75
|
|
Options forfeited
|
|
|
(141,548
|
)
|
|
$
|
3.90
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at December 30, 2006
|
|
|
1,717,531
|
|
|
$
|
11.47
|
|
Options granted
|
|
|
160,375
|
|
|
$
|
8.58
|
|
Options exercised
|
|
|
(132,230
|
)
|
|
$
|
3.75
|
|
Options forfeited
|
|
|
(184,053
|
)
|
|
$
|
11.16
|
|
Options expired
|
|
|
(71,328
|
)
|
|
$
|
3.75
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at December 29, 2007
|
|
|
1,490,295
|
|
|
$
|
12.24
|
|
Options granted
|
|
|
798,884
|
|
|
$
|
4.64
|
|
Options exercised
|
|
|
(113,138
|
)
|
|
$
|
3.75
|
|
Options forfeited
|
|
|
(693,815
|
)
|
|
$
|
12.50
|
|
Options expired
|
|
|
(443,711
|
)
|
|
$
|
13.07
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at January 3, 2009
|
|
|
1,038,515
|
|
|
$
|
6.78
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at January 3, 2009
|
|
|
201,121
|
|
|
$
|
11.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
Exercisable
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
|
|
|
Average
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Contractual Life
|
|
|
Number of
|
|
|
Exercise
|
|
Price Range
|
|
Options
|
|
|
Price
|
|
|
(in Years)
|
|
|
Options
|
|
|
Price
|
|
|
$3.75-$4.66
|
|
|
784,531
|
|
|
$
|
4.62
|
|
|
|
8.81
|
|
|
|
34,531
|
|
|
$
|
3.75
|
|
$10.29-$15.10
|
|
|
253,984
|
|
|
$
|
13.49
|
|
|
|
7.23
|
|
|
|
166,590
|
|
|
$
|
13.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,038,515
|
|
|
|
|
|
|
|
|
|
|
|
201,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65
BLUELINX
HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following tables summarize activity for our performance
shares, restricted stock awards and restricted stock unit awards
during fiscal 2008, fiscal 2007, and fiscal 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
|
|
|
|
Performance Shares
|
|
|
Restricted Stock
|
|
|
Stock Units
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Number of
|
|
|
Average
|
|
|
Number of
|
|
|
Average
|
|
|
Number of
|
|
|
|
Awards
|
|
|
Fair Value
|
|
|
Awards
|
|
|
Fair Value
|
|
|
Awards(1)
|
|
|
Outstanding at December 31, 2005
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
148,912
|
|
|
|
13.99
|
|
|
|
124,200
|
|
Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
(1,500
|
)
|
|
|
14.01
|
|
|
|
(4,950
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 30, 2006
|
|
|
|
|
|
|
|
|
|
|
147,412
|
|
|
|
13.99
|
|
|
|
119,250
|
|
Granted
|
|
|
245,025
|
|
|
|
10.46
|
|
|
|
218,063
|
|
|
|
10.50
|
|
|
|
99,325
|
|
Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(20,306
|
)
|
|
|
10.46
|
|
|
|
(34,635
|
)
|
|
|
12.18
|
|
|
|
(30,450
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 29, 2007
|
|
|
224,719
|
|
|
$
|
10.46
|
|
|
|
330,840
|
|
|
$
|
11.89
|
|
|
|
188,125
|
|
Granted
|
|
|
834,071
|
|
|
|
3.73
|
|
|
|
1,396,609
|
|
|
|
4.36
|
|
|
|
|
|
Vested
|
|
|
|
|
|
|
|
|
|
|
(166,604
|
)
|
|
|
5.05
|
|
|
|
|
|
Forfeited
|
|
|
(766,484
|
)
|
|
|
5.69
|
|
|
|
(359,557
|
)
|
|
|
6.81
|
|
|
|
(23,425
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 3, 2009
|
|
|
292,306
|
|
|
$
|
3.79
|
|
|
|
1,201,288
|
|
|
$
|
5.62
|
|
|
|
164,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
As these awards will be settled in cash, the fair value of the
restricted stock units will be marked-to-market each reporting
period through the date of settlement. On January 3, 2009,
the fair value of these awards was based on the closing price of
our common stock of $2.51. |
At January 3, 2009, the aggregate intrinsic value of
stock-based awards outstanding and options exercisable was
$4.2 million and $0, respectively (the intrinsic value of a
stock-based award is the amount by which the market value of the
underlying award exceeds the exercise price of the award). The
intrinsic value of stock options exercised during fiscal 2008,
fiscal 2007 and fiscal 2006 was $0.1 million,
$0.8 million and $5.2 million, respectively.
Defined
Benefit Pension Plans
Most of our hourly employees participate in noncontributory
defined benefit pension plans. These include a plan that is
administered solely by us (the hourly pension plan)
and union-administered multiemployer plans. Our funding policy
for the hourly pension plan is based on actuarial calculations
and the applicable requirements of federal law. We made a
$7.5 million discretionary contribution to the hourly
pension plan in fiscal 2008. We do not expect to make any
contributions in fiscal 2009. Contributions to multiemployer
plans are generally based on negotiated labor contracts. We
contributed $1.1 million, $1.4 million and
$1.6 million to union administered multiemployer pension
plans for fiscal 2008, fiscal 2007 and fiscal 2006,
respectively. Benefits under the majority of plans for hourly
employees (including multiemployer plans) are primarily
66
BLUELINX
HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
related to years of service. The following tables set forth the
change in projected benefit obligation and the change in plan
assets for the hourly pension plan:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
Fiscal Year Ended
|
|
|
|
January 3,
|
|
|
December 29,
|
|
|
|
2009
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Change in projected benefit obligation:
|
|
|
|
|
|
|
|
|
Projected benefit obligation at beginning of period
|
|
$
|
70,471
|
|
|
$
|
71,875
|
|
Service cost
|
|
|
2,245
|
|
|
|
2,506
|
|
Interest cost
|
|
|
4,435
|
|
|
|
4,216
|
|
Actuarial (gain) loss
|
|
|
71
|
|
|
|
(5,203
|
)
|
Curtailment
|
|
|
(913
|
)
|
|
|
|
|
Benefits paid
|
|
|
(4,294
|
)
|
|
|
(2,923
|
)
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation at end of period
|
|
|
72,015
|
|
|
|
70,471
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
Fair value of assets at beginning of period
|
|
$
|
72,318
|
|
|
$
|
65,426
|
|
Actual return on plan assets
|
|
|
(20,475
|
)
|
|
|
9,815
|
|
Employer contributions
|
|
|
7,500
|
|
|
|
|
|
Benefits paid
|
|
|
(4,294
|
)
|
|
|
(2,923
|
)
|
|
|
|
|
|
|
|
|
|
Fair value of assets at end of period
|
|
|
55,049
|
|
|
|
72,318
|
|
|
|
|
|
|
|
|
|
|
Funded (Unfunded) Status of Plan
|
|
$
|
(16,966
|
)
|
|
$
|
1,847
|
|
|
|
|
|
|
|
|
|
|
On December 30, 2006, we adopted the recognition and
disclosure provisions of SFAS 158, Employers
Accounting for Defined Benefit Pension and Other Postretirement
Plans (SFAS 158). SFAS 158 requires
us to recognize the funded status (i.e., the difference between
the fair value of plan assets and the projected benefit
obligations) of our pension plan in our Consolidated Balance
Sheets, with a corresponding adjustment to accumulated other
comprehensive (loss) income, net of tax. On January 3,
2009, we adopted the measurement date provisions of
SFAS 158, which requires us to measure plan assets and
benefit obligations as of our fiscal year-end dates. As of
January 3, 2009, the net unfunded status of our benefit
plan was $17.0 million and was included in Other
non-current liabilities on our Consolidated Balance Sheet.
As of December 29, 2007, the net funded status of our
benefit plan was $1.8 million and was included in
Other assets on our Consolidated Balance Sheet. The
net adjustment to other comprehensive income (loss) for fiscal
2008 and fiscal 2007 was $26.0 million loss
($15.9 million loss net of tax) and $9.6 million gain
($5.9 million gain net of tax), respectively, which
represents the net unrecognized actuarial gain (loss) and
unrecognized
67
BLUELINX
HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
prior service cost. The effects of adopting the provisions of
SFAS 158 on our Consolidated Balance Sheets at
January 3, 2009 and December 29, 2007, are presented
in the following table.
The funded status and the amounts recognized on our Consolidated
Balance Sheets for the hourly pension plan are set forth in the
following table:
|
|
|
|
|
|
|
|
|
|
|
January 3,
|
|
|
December 29,
|
|
|
|
2009
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Funded status
|
|
$
|
(16,966
|
)
|
|
$
|
1,847
|
|
Unrecognized prior service cost
|
|
|
4
|
|
|
|
21
|
|
Unrecognized actuarial loss (gain)
|
|
|
14,772
|
|
|
|
(11,228
|
)
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
(2,190
|
)
|
|
$
|
(9,360
|
)
|
|
|
|
|
|
|
|
|
|
Amounts recognized on the balance sheet consist of:
|
|
|
|
|
|
|
|
|
Accrued pension (liability) asset
|
|
|
(16,966
|
)
|
|
|
1,847
|
|
Accumulated other comprehensive (loss) income (pre-tax)
|
|
|
14,776
|
|
|
|
(11,207
|
)
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
(2,190
|
)
|
|
$
|
(9,360
|
)
|
|
|
|
|
|
|
|
|
|
The portions of the prior service cost and estimated net loss
for the hourly pension plan that are expected to be amortized
from Accumulated Other Comprehensive (Loss) Income into net
periodic cost over the next fiscal year are $0 and
$0.7 million, respectively.
The accumulated benefit obligation for the hourly pension plan
was $69.6 million and $68.9 million at January 3,
2009 and December 29, 2007, respectively.
Net periodic pension cost for our pension plans included the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
Fiscal Year Ended
|
|
|
Fiscal Year Ended
|
|
|
|
January 3,
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2009
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Service cost
|
|
$
|
2,245
|
|
|
$
|
2,506
|
|
|
$
|
2,689
|
|
Interest cost on projected benefit obligation
|
|
|
4,435
|
|
|
|
4,216
|
|
|
|
4,045
|
|
Expected return on plan assets
|
|
|
(6,002
|
)
|
|
|
(5,424
|
)
|
|
|
(5,200
|
)
|
Amortization of unrecognized gain
|
|
|
(365
|
)
|
|
|
|
|
|
|
|
|
Amortization of unrecognized prior service cost
|
|
|
2
|
|
|
|
1
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost
|
|
$
|
315
|
|
|
$
|
1,299
|
|
|
$
|
1,536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68
BLUELINX
HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following assumptions were used to determine the projected
benefit obligation at the measurement date and the net periodic
pension cost:
|
|
|
|
|
|
|
|
|
|
|
January 3,
|
|
|
December 29,
|
|
|
|
2009
|
|
|
2007
|
|
|
Projected benefit obligation:
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
6.42
|
%
|
|
|
6.45
|
%
|
Average rate of increase in future compensation levels
|
|
|
4.00
|
%
|
|
|
4.00
|
%
|
Expected long-term rate of return on plan assets
|
|
|
8.50
|
%
|
|
|
8.50
|
%
|
Net periodic pension cost
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
6.45
|
%
|
|
|
6.00
|
%
|
Average rate of increase in future compensation levels
|
|
|
4.00
|
%
|
|
|
4.00
|
%
|
Expected long-term rate of return on plan assets
|
|
|
8.50
|
%
|
|
|
8.50
|
%
|
Our percentage of fair value of total assets by asset category
as of our measurement date are as follows:
|
|
|
|
|
|
|
|
|
|
|
January 3,
|
|
|
September 27,
|
|
Asset Category
|
|
2009
|
|
|
2008(2)
|
|
|
Equity securities domestic
|
|
|
52
|
%
|
|
|
61
|
%
|
Equity securities international
|
|
|
13
|
%
|
|
|
16
|
%
|
Fixed income
|
|
|
21
|
%
|
|
|
23
|
%
|
Other(1)
|
|
|
14
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Other represents cash contributed on January 2, 2009. |
|
(2) |
|
For fiscal 2007, our measurement date fell on the last day of
the third quarter. |
Investment
policy and strategy
Plan assets are managed as a balanced portfolio comprised of two
major components: an equity portion and a fixed income portion.
The expected role of plan equity investments will be to maximize
the long-term real growth of fund assets, while the role of
fixed income investments will be to generate current income,
provide for more stable periodic returns, and provide some
downside protection against the possibility of a prolonged
decline in the market value of equity investments. We will
review this investment policy statement at least once per year.
In addition, the portfolio will be reviewed quarterly to
determine the deviation from target weightings and will be
rebalanced as necessary. Target allocations for 2009 are 60%
domestic and 15% international equity investments, and 25% fixed
income investments.
The expected long-term rate of return for the plans total
assets is based on the expected return of each of the above
categories, weighted based on the target allocation for each
class. Equity securities are expected to return 9% to 10% over
the long-term, while debt securities are expected to return
between 5% and 6%.
Our estimated future benefit payments reflecting expected future
service are as follows:
|
|
|
|
|
Fiscal Year Ending
|
|
(In thousands)
|
|
|
January 2, 2010
|
|
$
|
3,503
|
|
January 1, 2011
|
|
|
3,684
|
|
December 31, 2011
|
|
|
3,910
|
|
December 29, 2012
|
|
|
4,118
|
|
December 28, 2013
|
|
|
4,477
|
|
January 3, 2015 December 29, 2018
|
|
$
|
26,871
|
|
69
BLUELINX
HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Defined
Contribution Plans
Our employees also participate in several defined contribution
plans. Contributions to the plans are based on employee
contributions and compensation. Contributions to these plans
totaled $4.1 million, $5.1 million and
$6.3 million for fiscal 2008, fiscal 2007 and fiscal 2006,
respectively.
Beginning in fiscal 2009, we suspended the Company matching
contributions to our defined contribution plans as part of our
cost reduction initiatives.
|
|
7.
|
Inventory
Reserve Accounts
|
The following reflects our activity for inventory reserve
accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
|
|
|
|
|
|
|
|
|
Write-offs and
|
|
|
Ending
|
|
|
|
Balance
|
|
|
Acquisitions
|
|
|
Expense
|
|
|
Other, net
|
|
|
Balance
|
|
|
|
(In thousands)
|
|
|
Fiscal 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obsolescence/damaged inventory reserve
|
|
$
|
2,725
|
|
|
$
|
24
|
|
|
$
|
2,827
|
|
|
$
|
(514
|
)
|
|
$
|
5,062
|
|
Lower of cost or market reserve
|
|
$
|
|
|
|
$
|
|
|
|
$
|
117
|
|
|
$
|
(117
|
)
|
|
$
|
|
|
Fiscal 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obsolescence/damaged inventory reserve
|
|
$
|
5,062
|
|
|
$
|
|
|
|
$
|
1,570
|
|
|
$
|
(2,268
|
)
|
|
$
|
4,364
|
|
Lower of cost or market reserve
|
|
$
|
|
|
|
$
|
|
|
|
$
|
125
|
|
|
$
|
(104
|
)
|
|
$
|
21
|
|
Fiscal 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obsolescence/damaged inventory reserve
|
|
$
|
4,364
|
|
|
$
|
|
|
|
$
|
1,892
|
|
|
$
|
(2,225
|
)
|
|
$
|
4,031
|
|
Lower of cost or market reserve
|
|
$
|
21
|
|
|
$
|
|
|
|
$
|
3,400
|
|
|
$
|
(21
|
)
|
|
$
|
3,400
|
|
|
|
8.
|
Revolving
Credit Facility
|
On May 7, 2004, we entered into a revolving credit
facility. The revolving credit facility, as amended, has a
revolving loan limit of $800 million and matures on
May 7, 2011. Advances under the revolving credit facility
are made as prime rate loans or LIBOR loans at our election. The
revolving credit facility loans are secured by a first priority
security interest in all inventory and receivables and all other
personal property. Our revolving loan limit of $800 million
includes a term loan for $6 million used to refinance and
consolidate certain loans made by the revolving loan lenders to
us. Borrowing availability under the revolving credit facility
is based on eligible accounts receivable and inventory. As of
January 3, 2009, we had outstanding borrowings of
$156 million and availability of $192 million under
the terms of the revolving credit facility. We classify the
lowest projected balance of the credit facility over the next
twelve months of $96 million as long term debt.
Interest rates payable upon such advances are based upon the
prime rate or LIBOR, depending on the type of loan we choose,
plus an applicable margin. The applicable interest rates for
prime rate and LIBOR loans are subject to adjustments based on
our EBITDA amount as defined in the revolving credit facility
agreement. At January 3, 2009, the interest rate prevailing
on the revolving credit facility was 3.2%. Under the revolving
credit facility, as of January 3, 2009, we paid an unused
line fee of 0.25% on the unused portion of the commitment. In
fiscal 2006, we incurred $0.4 million of debt financing
costs related to the revolving credit facility which are being
amortized over the term of the facility.
The revolving credit facility contains customary negative
covenants and restrictions for asset based loans, with which we
are in compliance. In addition, the revolving credit facility
requires, during a period
70